Republican Sen John Kennedy leads legislators against SEC list of private investor info

Sen. John Kennedy, R-La., is leading a bipartisan team of lawmakers to stop the Securities and Exchange Commission (SEC) from finishing a database that contains the private information of investors, calling it a violation of the Fourth Amendment.

The Consolidated Auto Trail, or CAT, was originally proposed in 2010 to help regulators track order and trading activity throughout U.S. markets on equities and options. The database will list all the financial holdings and personal information of investors, including their name, phone number, address, brokerage accounts, birthdate and Social Security number.

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"Collecting and storing personal data in the CAT serves no regulatory purpose. It’s unconstitutional, and it puts about 158 million Americans at risk," Kennedy told FOX Business. "Since the SEC seems set on ignoring the Fourth Amendment, I’ve introduced a bill that would stop the SEC from requiring brokers to give investors’ personal information to the CAT."

In response to the regulator’s September announcement, Kennedy, R-La., and Sen. Katie Britt, R-Ala., sent a letter to the U.S. Comptroller Gene Dodaro on Oct. 5 saying the CAT has experienced several operational delays as market participants, SEC commissioners and members of Congress continued to raise concerns over the growing costs related to the list’s implementation.

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When the CAT was first approved in 2016, plan participants estimated the average annual costs of operating the plan at a little more than $51 million. By March of this year, the CAT published a 2023 budget of $223 million, according to the SEC.

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Adopted on Sept. 6, the SEC's funding model for the database is called the Executed Share Model. The model will allocate two-thirds of CAT operating costs on brokers and one-third to exchanges, burdening over 80% of CAT costs to industry member broker-dealers, according to the American Securities Association. 

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When the list is fully operational between 2024 and 2025, companies and investors trading on the U.S. stock exchanges will have just 24 hours to fulfill the SEC’s request for the information.

"The SEC will be required to delete any personally identifiable information that it may collect as part of a specific investigation as soon as that issue is resolved — so bureaucrats can’t build a perennial database that exposes investors’ private information," Kennedy added. 

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Introduced in the House by Rep. Barry Loudermilk, R-Ga., in July, Kennedy’s Protecting Investors’ Personally Identifiable Information Act was designed to safeguard data that could reveal the identity of American investors.

According to Kennedy’s bill, should the SEC attain personally identifiable information, the commission will destroy that data no later than one day after the investigation’s conclusion.

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"The SEC would only be able to obtain personal information on a case-by-case basis," Kennedy said.

The SEC declined to comment on the proposed legislation.

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"The CAT has been expensive, far more costly than anyone imagined it would be," SEC Commissioner Hester Peirce said in a statement last month. "CAT’s considerable costs need to be allocated, and no allocation method is ideal. And regardless of which approach we choose; most costs ultimately will come out of investor pockets."

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While the Financial Industry Regulatory Authority (FINRA) and the brokerage industry raised "meaningful" and "understandable" objections to the allocation of expenses, the Wall Street regulator said that given the price tag of more than $500 million to date and billions to come, "discontent would be inevitable under almost any method of allocation, as reaction to previous fee filing models has shown," Peirce followed in her September statement. 

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"Bureaucrats are known for overreach, and a new Republican bill will protect the American people from this invasion of privacy," ASA chief executive Chris Iacovella said in a recent interview with FOX Business. "Democrats think the SEC needs this information to stop insider trading, which is untrue, as the commission brings an average of 100 cases per year under the current system. Additionally, some Democrats strongly support a surveillance state."

Joining the ASA and Kennedy’s fight against the SEC’s CAT list are legislators from both the House and Senate, including Republican Sens. Michael Rounds of South Dakota; Jerry Moran of Kansas; David Daines of Montana; John Boozman and Tom Cotton of Arkansas; and Katie Britt and Tommy Tuberville of Alabama, as well as Rep. Loudermilk.

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Attorneys general from Arkansas, Florida, Georgia, Iowa, Kentucky, South Carolina, Utah and West Virginia have also taken a stance alongside Kennedy, the ASA confirmed. 

While a vote on the bill has not been announced, the Republican lawmakers said they were hopeful there would be a vote in the future.

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