The Panopticon is here: Legal org sues Gensler over CAT rule

By Rodney F. Tonkovic, J.D.

The National Center of Public Policy Research filed a complaint looking to block the SEC's Consolidate Audit Trail regulation. The NCPPR says that it is challenging the SEC's "shocking arrogation of power" to impose dystopian surveillance and suspicionless seizures and searches on millions of American investors. The complaint argues that the Commission lacks any authority, history, or oversight structure that would allow it to seize and surveil investors' private information. The complaint asks that the court declare Rule 613 to be null and void and that its implementation be enjoined (Davidson v. Gensler, April 16, 2024).

CAT rule. The SEC added Rule 242.613 in Release No. 34-67457 in 2012. The rule requires national securities exchanges to submit an NMS plan to implement a consolidated audit trail. The rule requires that the system be able to collect and accurately identify every order, cancellation, modification, and trade execution for all exchange-listed equities and equity options across all U.S. markets, from the time of order inception through routing, cancellation, modification, or execution.

CAT suit. The complaint argues that the SEC, with no statutory authority, adopted Rule 613, which has created what would be the largest database of securities data ever. The plaintiff National Center for Public Policy Research ("NCPPR") likens the operation of the rule to Jeremy Bentham's "Panopticon," a prison system featuring 24-hour surveillance. While the Panopticon would only apply to prisoners, the SEC's scheme seizes personally identifiable records for everyone who trades on an American exchange. There is nothing, the complaint says, in the securities laws that gives the SEC the power to regulate the investment decisions of Americans or to gather all investment data from them or their brokers.

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