A new program initiated by the Securities and Exchange Commission (SEC) will collect the details of every securities trade in the country, including the personal information of the investors involved.
The good news is a recent district court decision declared a similar overreach by the Treasury Department to be an unconstitutional data grab. The bad news is that seemingly well-educated people keep thinking programs like this are a good idea.
The courts need to put a stop to this nonsense and establish clear rules as to what information the government is permitted to gather absent a warrant. In the information age, only our freedom is at stake.
What is this new SEC program? As former Attorney General Bill Barr writes in the WSJ: “The Securities and Exchange Commission is deploying a massive government database — the Consolidated Audit Trail, or CAT — that monitors in real time the identity, transactions and investment portfolio of everyone who invests in the stock market … [B]y allowing the commission to ‘watch investors’ every move in real time,’ CAT will make it easier to investigate insider trading or market manipulation.”
The CAT apparently works by compelling every broker in the country to provide real-time details of the trades they execute, including the name, address, and DOB of the investors involved. As Barr points out, this raises all sorts of constitutional issues: “But as a lawsuit being filed Tuesday in Texas federal court makes clear, CAT crosses a constitutional red line.
Accepting this sweeping surveillance would eviscerate fundamental privacy protections. That a few bad apples might engage in misconduct doesn’t justify mass surveillance of everyone’s private affairs.”
Sound familiar? The arguments against the CAT are the same ones raised against the Corporate Transparency Act (CTA). That law also would collect the information of millions of Americans — in this case the owners and managers of smaller businesses and other legal entities – all with the idea of cracking down on so-called shell companies used to launder money.
As with the CAT, the disconnect between the targeted activity — forming legal entities and running a small business — and the law-enforcement purpose of identifying money laundering is tenuous at best. Nothing in the collected data of either program would signal when illicit activity is taking place. On the other hand, allowing government agencies to gather massive amounts of personal information absent reasonable suspicion or probable cause presents all sorts of privacy issues and is clearly outside the bounds of the Constitution.
The District Court in Northern Alabama agrees. As Judge Liles Burke wrote in his decision:
“The law is clear on this much: the Necessary and Proper Clause ‘gives Congress authority to “legislate on that vast mass of incidental powers which must be involved in the constitution,’” but “it does not license the exercise of any ‘great substantive and independent power[s]’ beyond those specifically enumerated.”
“The Government’s reading of the Necessary and Proper Clause is far afield from that principle. It would sanction almost any exercise of Congressional power given the existence of a relevant international standard. Read that way, the Necessary and Proper Clause would give Congress carte blanche to do as it pleases, allowing it to ‘reach beyond the natural limit of its authority and draw within its regulatory scope those who otherwise would be outside of it.’”
The emergence of yet another police-state policy — this time being implemented by a so-called independent agency without legislative authority or public debate — only raises the stakes of the National Small Business Association’s lawsuit against the CTA.
If the CTA is deemed legal, it is hard to see where the data collection frenzy will end. On the other hand, a clear decision by the courts limiting what information the government can forcibly collect could save everybody a lot of pain and help restore balance between our privacy and the government’s obligation to enforce the law.
