The SEC Is Watching American Investors’ Trades. That’s a Privacy Nightmare.

The federal government built a system that records the lawful trading activity of tens of millions of Americans, invades their financial privacy, and makes investors pay for the surveillance. The Securities and Exchange Commission (SEC) calls it the Consolidated Audit Trail, or CAT. Now the agency is considering “fundamental changes” to the setup. It should eliminate the system instead.

CAT, launched in 2020, records almost every order, modification, cancellation, and execution by tens of millions of investors. The SEC requires these records so regulators can search trading activity and reconstruct it long after a trade occurred. The records are collected before there is probable cause, reasonable suspicion, or even an allegation of wrongdoing. Lawful activity is gathered first and searched later. Even the SEC has acknowledged that CAT raises civil liberties, privacy, confidentiality, and cybersecurity concerns.

Congress did not authorize the SEC to create this system or appropriate money to run it. The agency instead required brokers and exchanges to build and pay for it, with costs that can reach investors. That is a tax in all but name, imposed without the vote or the appropriation the Constitution requires. And even Congress cannot authorize a search the Fourth Amendment forbids.

A trading record also cannot explain why someone made a trade. Though it predated CAT, the SEC’s case against Mark Cuban shows why that matters. The SEC sued Cuban in 2008 over trades he made in 2004. He fought the case for five years and later said he spent approximately $12 million in legal fees before a federal jury found him not liable.

Under CAT, regulators no longer need to begin with a well-known individual or a conspicuous transaction. The system creates a searchable record of trading activity across the market, allowing the government to reconstruct the actions of ordinary investors long after the fact. Cuban’s case shows how a chronology of communications and trades can become the foundation for a serious allegation. CAT makes it possible to assemble those chronologies far more broadly and systematically. The record shows what happened, but it does not show what the investor knew.

The SEC has reduced some privacy risks. In 2025, it eliminated requirements to report customer names, addresses, and years of birth for most U.S. natural persons. Early this year, it approved additional changes requiring previously reported identifying information to be deleted or made inaccessible to regulators. But anonymized identifiers still link trading activity to customers, enabling regulators to obtain someone’s identity through brokers. Removing names does not erase that history.

Removing names also does not remove the cost. Brokerage firms still must maintain systems to report to CAT, reconcile records, and correct errors. Firms can absorb those expenses or pass them along through higher prices or fewer services.

For smaller firms, absorbing the expense can be harder. A reporting system and the staff to run it do not cost proportionately less just because a firm has fewer clients. A large brokerage can spread those costs across a broad business. A boutique helping young companies raise capital has less room to do so.

That expense can affect which offerings reach investors. A small offering may no longer be worth pursuing once another compliance cost is added. When a firm walks away, an entrepreneur loses a path to public capital, and investors lose a chance to participate. The SEC can narrow access to the market without prohibiting a single offering. An agency charged with facilitating capital formation should account for those lost opportunities as carefully as it counts the enforcement benefits it claims.

The U.S. Supreme Court rejected the SEC’s positions on its administrative-proceedings regime in SEC v. Cochran (2023) and SEC v. Jarkesy (2024). And in 2025, the 11th U.S. Circuit Court of Appeals threw out the SEC’s CAT funding order, which directed how its costs would be allocated among industry participants. The SEC responded with a temporary plan that still charges brokers, exchanges, and the private Financial Industry Regulatory Authority for CAT.

Concerns about how the SEC uses its power are not theoretical to me.  I saw that firsthand in Powell v. SEC. For more than 50 years, the agency required defendants who accepted settlements with sanctions to agree never to deny its allegations publicly. Thousands of Americans were bound by that restriction. I was one of them. We challenged the policy, and this year the commission withdrew it while our petition for the Supreme Court review was pending.

That policy had stood since 1972. Americans should not have to spend years fighting an agency to get it to question the limits of its own power. Investors challenging CAT should not have to go through the same ordeal.

Changing who runs CAT, who pays for it, or which names it stores does not cure the underlying problem. The SEC cannot fix a lack of authority by rearranging the program, and Congress cannot make an unconstitutional search lawful by funding it. Shut it down.