SEC’s Surveillance Of Investors Violates First Amendment

The First Amendment forbids the government from forcing you to disclose the groups or organizations that you support. That is because the First Amendment guarantees our right to associate with others, and associational privacy is fundamental to that freedom. Nevertheless, in complete disregard for these associational rights, the Securities and Exchange Commission currently requires investors to disclose the businesses they support financially. No government agency has the authority to compel Americans to disclose the companies in which they invest.  

Yet for several years, the SEC has done exactly that through a surveillance program called the Consolidated Audit Trail (CAT). The CAT is “the world’s largest collection of retail investor financial information ever assembled.” Since its inception, the program has allowed the SEC to monitor trillions of securities transactions. And the SEC maintains details about those transactions in a government database it searches at will.

The CAT’s scale (and the SEC’s apparent disdain for the Constitution’s guarantees) are shocking. But for decades, regulators and the courts have ignored the Constitution’s requirements in the context of financial regulation and economic liberty.

It doesn’t have to be this way. Courts or the SEC have the authority to end the surveillance — and should do so because it is both illegal and unconstitutional, as our firm, the New Civil Liberties Alliance, has argued in our lawsuit against the CAT. For example, Congress never authorized the program nor appropriated money for it. And the warrantless surveillance violates the Fourth Amendment.

But equally appalling is the SEC’s abridgment of the First Amendment’s guarantee of associational freedom. The Supreme Court has long held that the First Amendment prevents the government from collecting information about the entities Americans associate with or financially support. 

During the Civil Rights era, Alabama sought to force the NAACP to provide the state with its membership list. However, in NAACP v. Alabama (1958), the Supreme Court held that Alabama’s demand violated the First Amendment. The Court explained that the “inviolability of privacy in group association may in many circumstances be indispensable to preservation of freedom of association.” In other words, the government’s forced disclosure of one’s associations can unlawfully limit expression protected by the First Amendment. 

Similarly, the Supreme Court held in Americans for Prosperity v. Bonta (2021) that California could not require a non-profit to disclose its donor lists to the state. Citing NAACP, the Court again explained that forced disclosure of an entity’s supporters created a risk of limiting expression “in violation of the First Amendment.” 

The same principles apply here. The First Amendment guarantees Americans the freedom to support — or oppose — a variety of businesses and other entities through their investment decisions. 

In today’s polarized political environment, the government-mandated disclosure of investors’ financial decisions and relationships with businesses raises the same chilling concerns present in cases like NAACP and Americans for Prosperity. In fact, SEC Commissioner Hester Peirce has warned of that possibility, noting that the SEC could use CAT data “to stalk personal or political enemies.” In her view, given the “expressive value” of various trading decisions, “untargeted surveillance of financial transactions raises the same types of civil liberty concerns as other mass surveillance programs.” 

The potential for government abuse undergirds the Supreme Court’s associational privacy decisions. And the risk of partisan targeting of individuals is arguably even higher today. In NAACP and Americans for Prosperity, the government sought to force disclosure of one organization and its supporters’ association. Today, the SEC is forcing all investors to disclose countless associations. 

Worse yet, details of those relationships are stored in a database subject to government search at any time. Due to technological advances, the government cannot ensure that these sensitive details will not be the subject of a hack or data breach. As the Supreme Court unanimously recognized last month in First Choice Women’s Resource Centers, Inc. v. Davenport, sensitive information disclosed only to the government can “wind up in the public domain due to a hack or leak.” For these reasons, it is impossible to reconcile the CAT with the First Amendment’s guarantee of associational freedom.

That investment associations have an economic component does not render the association outside the bounds of the First Amendment. Americans for Prosperity explained that “‘it is immaterial’” to the level of scrutiny “‘whether the beliefs sought to be advanced by association pertain to political, economic, religious, or cultural matters.’ Regardless of the type of association, compelled disclosure requirements” receive heightened scrutiny under the First Amendment.

Perhaps recognizing the weight of this constitutional objection and others, the SEC has promised a “comprehensive review” of the CAT. To that end, the SEC is soliciting public comments about its surveillance scheme until June 15, 2026. 

The SEC, however, seems unlikely to voluntarily shutter the CAT on its own. But public pushback could cause the SEC to change course. And so, Americans concerned about their associational privacy should pressure the SEC to end this unlawful mass surveillance. Anything less than stopping the SEC’s ubiquitous surveillance of investors guarantees continued, irreparable violation of investors’ First Amendment freedoms. 

Christian Clase and Margot Cleveland are attorneys at the New Civil Liberties Alliance. NCLA has sued the SEC over the CAT in the Western District of Texas.