In this episode of Unwritten Law, Mark Chenoweth and John Vecchione are joined by NCLA Of Counsel Margot Cleveland to discuss one of NCLA’s most consequential ongoing cases: Davidson v. Adkins, a constitutional challenge to the SEC’s Consolidated Audit Trail (CAT).

The CAT requires broker-dealers to collect and transmit detailed data on virtually every stock trade in the United States, creating a massive government-accessible database of Americans’ financial activity. Margot explains why recent changes announced by the SEC—such as removing names but retaining identifying numbers—do not cure the Fourth Amendment problem, and why suspicionless, warrantless searches of stock-trading data resemble the general warrants the Constitution was designed to forbid.

The episode also examines the SEC’s repeated requests for delays while the program continues to operate, the lack of congressional authorization or appropriation for CAT, related rulings from the Eleventh Circuit, and the broader dangers of mass financial surveillance for privacy, free association, and constitutional limits on agency power.

Mark Chenoweth: Welcome to "Unwritten Law." This is Mark Chenoweth here with John Vecchione. And we are delighted to be joined by our colleague, Margo Cleveland, who's of counsel here at the New Civil Liberties Alliance, to talk about what I think is one of the most important cases that NCLA is involved in right now. And that is the Davidson v. Atkins case in the Western District of Texas. This is the case in which NCLA has sued the SEC and CAT LLC over their – and FINRA, I guess – for their creation of this giant database that has all Americans' stock transactions in it.

And Margo, you have written a blog post that I think just does a wonderful job of sort of exposing the defect in the SEC's logic, and I'm hoping that you can talk with us about that today. The SEC asked for a six-month delay. The court granted them that delay, and the court just granted them another six-month delay, which we'll get to here in a minute. During that six months, it sounds like they took some efforts to maybe not take as much personally identifying information as they had been taking before. Can you tell us why that is significant, whether it's significant, and then why that doesn't solve the Fourth Amendment problem?

Margot Cleveland: Absolutely. Just so that the listeners remember, the CAT is the Consolidated Audit Trail. It is something that has been in the works since the Obama administration, where the SEC required private stock entities – so the different exchanges – to gather an array of information on every single trade in the American security system.

Mark Chenoweth: If you trade on Schwab or Fidelity, or whatever your trading platform is, they are taking that information and they are sharing it directly with the government without your further permission or knowledge.

Margot Cleveland: Absolutely, and it's everything. It's the small stuff, it's the big stuff, it's everything in between. When they were doing this originally, the system also collected personal identifiable information, so it would include your name and your birth date and information like that. Well, one of the things that happened after the lawsuit, and after the Trump administration has taken office, is that SEC said, "Okay, well, we're gonna not gather that personal information anymore," but the personal information is still tied to a number that the SEC uses.

All the SEC has to do is ask the broker, "Who is this person?" In other words, the government's identifying us by numbers, not by name. And the part that I find the most troubling from the Fourth Amendment perspective, and something that the SEC seems to be admitting they're doing – but it hasn't gotten any backlash – is what they're doing with this information. The SEC has required all this information to be put in. They are now using computers to do searches on all of that information.

Mark Chenoweth: On the trading data? They're just –

And what the SEC is arguing, and what they argued – I think it was on Tuesday, when we appeared before the judge – is, "Well, we need to hold this case off because we're not sure exactly what we're going to do. And we've already changed this one big thing. We're not collecting this personal identifiable information anymore." And the answer to that, as I said to the judge, was, "That doesn't matter. The search is illegal, whether or not you know whose property you're searching at the time." And I think there's –

Mark Chenoweth: You had a wonderful analogy in your blog post on it.

Margot Cleveland: Yep. And I actually came up with another one after that, so I'll use both of them. Because I really think it crystallizes the problem. Let's say that the police think that there's probably one out of 1,000 storage lockers where there's something illegal in it. They can't go and cut the lock off, open it up, rummage through it, and then if they find something suspicious, then go to the owner and say, "We want to know who's this is."

They serve a subpoena and they say, "We want to know who owns this illegal contraband." Or another way you could look at it is, the police can't walk down the block in a high crime area every night and pop the trunk, rummage in the car, and when they find something, then look at the VIN, a number that is connected to someone, and then say, "That gives you cause to go and do a search to get a search warrant, to get an arrest warrant." Whatever it may be.

Mark Chenoweth: Yeah, this is a legal search, Margo, because we didn't know whose car it was. We just were popping all the trunks and looking and rummaging, and once we found something, then we violated someone's privacy by finding out who they were. There's no violation as we don't know whose car it is.

Margot Cleveland: What they actually are doing is saying, "Well, they never complained about the blue slip process before, and that's not part of the complaint here." And the answer to that is, "We're still not complaining about the blue slip process, even though I do have some concerns about it. We're complaining about the causeless searches of all of this personal information." And when I say personal information, your stock trades. In the old days you had a piece of paper saying, "I own shares in this."

Mark Chenoweth: Well –

Margot Cleveland: It just is electronic. It doesn't matter. It's still your property that they're searching.

Mark Chenoweth: And let me just point out, this is perfectly normal behavior, to engage in a stock transaction. It's not like you're doing something that is sort of suspicious.

John Vecchione: It's not like owning crypto. [Laughs].

Mark Chenoweth: John said that, not me.

John Vecchione: And I said that because that was what they said in the Harper case, right?

Mark Chenoweth: Yeah, that is. That is. They thought it was sort of suspicious, just that alone. Something like half of all Americans own stock. The idea that it's behavior that the government needs to take a closer look at when people are engaged in this sort of behavior, it's not like – the analogy that springs to mind is, if you're taking large amounts of cash out of the country, the government wants to know about that. Because there might be something going on there. This is just normal behavior.

Margot Cleveland: Right.

Mark Chenoweth: And yet they're insisting on doing these searches. No suspicion, no probable cause, no warrant. Just searching everybody. You, me, anybody else who owns stock.

John Vecchione: And I want to add, normal domestic activity.

Mark Chenoweth: Right.

John Vecchione: They don't have –

Mark Chenoweth: No national security.

John Vecchione: They have no nexus. Exactly. None of that. At least with cash they can say, "Oh, maybe they're running guns or something, because it's going abroad." Here, most of these trades are domestic.

Margot Cleveland: And the analogy you used, or the contrast you used about the money going overseas, is actually extremely apt. Because when the Trump administration took it from $10,000 down to $200 at the border, we have two district courts who have said, "We are getting to the step of this is a general warrant. There isn't a high enough concern there that we believe that it's justified to require that type of reporting."

Mark Chenoweth: Now, can you tell our listeners what a general warrant is? Because everyone might not know that.

Margot Cleveland: Right. At the founding, England used to use those, where basically you could just go in and search for anything. You didn't have to have something specifically defined that you were looking for.

Mark Chenoweth: Right. You didn't have to be particular in the place to be searched or the thing to be looked for.

Margot Cleveland: Right. And when the government is saying, "We want all transactions," which the court is saying, "When you're looking at $200, it's virtually all transactions." And I think that's so analogous to what we're looking at here, is they're searching for all of these stock trades. They're not looking for something specific. This isn't a matter of, "Show me a crime, I'll show you a criminal." This is, "Let's find a crime." They don't even have a basis to say that there's a crime. Now, the counter, people will say, is, "Well, people are doing shady stuff. We want to stop them. And this is the way to do it."

Well, the Fourth Amendment is always a way for the government to be stopped in finding criminals. You go through the high crime neighborhood and you ransack the cars, you're going to find criminals too. That's not an excuse for the government to be doing this. And former Attorney General William Barr, he wrote a great op-ed for The Wall Street Journal, talking about how outrageous this program is. And I share all of his concerns. And I'm frankly shocked that you are not seeing the public in general being outraged.

Mark Chenoweth: The public should be outraged. Congress should be outraged. I'm sure there's a lot of people in Congress who own stock, and Congress never authorized this. This is not the result of some bill that Congress passed. This is something that the agency cooked up on its own because it decided it needed to do a better job than it's been doing of sort of ferreting out wrongdoing; but it's decided to kick the Fourth Amendment to the curb, John.

John Vecchione: And how's it paid for?

Mark Chenoweth: Congress isn't paying for it either. Margo, you can you can tell the people better than I can what's going on with that.

Margot Cleveland: Right. I'm coming at it from the Fourth Amendment perspective, because that was that was kind of one of my niches. It actually is more fundamentally wrong, because it is not in the Security Exchange Commission Act. There was no authority for the SEC to do this. And Congress did not appropriate any money for this. And there is actually – and I'd have to look, I'm pretty sure it's the 11th Circuit – that has already said that this funding mechanism for CAT is unlawful.

Margot Cleveland: And was I right? It was at the 11th?

Mark Chenoweth: Eleventh. Eleventh Circuit.

Margot Cleveland: I wasn't sure if it was 11th or 10th. They said the funding mechanism is unlawful. We are making that argument as well, as well as the fact that it's not authorized. Congress didn't authorize it. We also say, of course, they couldn't authorize it because of the Fourth Amendment. Earlier this week, the district judge granted the SEC a stay for another six months. And again, the SEC's basis for arguing is, "Well, we're not quite sure what we're going to do with this." That's denying our clients their day in court.

Mark Chenoweth: Well, and it's denying their constitutional rights. The government isn't saying, "Let's put a stay on all of this search activity that we're doing for six months. We'll stay the activity and we'll look at what we're doing, and then we'll all come back in six months and decide if we can pick this back up where we left off." They're saying, "Judge, we want six more months of seizing and searching Americans' financial records unconstitutionally. And just put these plaintiffs' cares to the side. We'll just keep doing what we're doing. And while we're violating everybody's constitutional rights, we'll think about if there's a way we should be doing this differently."

Margot Cleveland: Right. And they kept going back to the blue sheets saying, "Well, we're using blue sheets, Your Honor." And they're not complaining about blue sheets, but they never came to the fact or never addressed the point that they're still without any cause running these searches. I'm frankly amazed that there haven't been any defendants who have challenged the evidence based on the – challenged it is being unconstitutionally obtained from them. And that might be just –

Mark Chenoweth: Say more about that, because I think that I think that that's the fly in the ointment here in some ways. The government is doing all of this illegal searching. If they find somebody, if they find another Allen Stanford or –

John Vecchione: Boesky.

Mark Chenoweth: Yeah, whoever. And they try to introduce evidence from this, you don't even think that that's admissible, and that they might be able to get that excluded.

Margot Cleveland: Right. I think that the government would have to – well, first, the government's going to argue, no, that this is not a search within the Fourth Amendment. They'll go down that route. I think that's all wrong. Then they're going to have to do the inevitable discovery. We would have come up with this anyway by these normal techniques that we use when we're investigating, whatever, insider trading or the pump-and-dump types of transactions.

And they had ways that they did that in the past, where they were looking at things and they were doing the searches in the past without searching this kind of data. There were ways they could come across it. This is just easier and more efficient for the government, which, yeah, it is, if you ignore the Fourth Amendment.

Mark Chenoweth: Yeah, it's always easier to ignore people's rights.

John Vecchione: Will they know that this is the way that they were found out? Because to have a suppression hearing, you've got to know that's how they found you. And what I think is kind of insidious about this is that they're going through everything. Who knows how they pass it along? I am not sure that a criminal defense attorney would immediately know that. Right? Do they have to tell you how they found you?

Mark Chenoweth: Well, it seems like exculpatory material that you'd have to disclose under Brady v. Maryland.

John Vecchione: Is it exculpatory that –

Mark Chenoweth: That they found it unlawfully?

John Vecchione: Well, that's something they did bad, but it has to be something that shows your innocence. I don't know.

Mark Chenoweth: It shows you're innocent, not that they're guilty?

John Vecchione: I don't know. Yeah. I'm not sure. I think that's another problem here, is because who knows?

Margot Cleveland: Well, one of the parts in discovery I would think a criminal defense attorney would ask for, the production of any blue sheets. And the blue sheets, they're only using them to find the identity. They're not using them to get transaction data anymore. If they're using the blue sheets to get your identity, that means they used CAT. It doesn't necessarily mean that they found you out by doing these suspicionless searches.

Maybe they found you because they found somebody else and there was some other connection. If you are a criminal defense attorney and you have a client being charged, if they had a blue sheet, the next thing is, it came from CAT. They're not using them for other reasons now.

Mark Chenoweth: Well, so what happens now? Tell us about the hearing that took place. What was in front of the judge? What did he decide?

Margot Cleveland: The judge had set it up as a status hearing, but actually held argument on the defendant's motion for another six month stay. They argued, "This is in flux. We don't want this to be moot when it goes up to the Supreme Court." Peggy Little, who is the lead attorney for NCLA on this case, explained how nothing they change can make this constitutional, and highlighting that it was never authorized by Congress, that it was – there was no appropriation for the fund. The only thing they can do is get rid of it.

And if they do that, we would happily dismiss the case. And then, additionally, we made the point about the Fourth Amendment, that these searches are going on and the changes that they have made do not change the Fourth Amendment issue at all. The judge took a couple minutes, went off camera, came back and granted the stay for six months. In that six month time period, the case is in abeyance. We actually did have pending a motion to certify class, so that's on hold for six months. We also had pending another preliminary injunction motion.

The first one was denied, but since then we've had Supreme Court precedent that is further supportive of our position. We've had the 11th Circuit decision that the funding mechanism is unlawful. And we now have more clear evidence that they are illegally searching the CAT. And given that the government says they're going to change things, the burden and the harm to the government cannot be as grave as what they said before when this was in place and they were just leaving it go. We're going to have to wait another six months for this case in the Western District of Texas.

Mark Chenoweth: Well, I don't know what stops Judge Albright from giving him another six months at the end of that time. I don't understand, when you have an ongoing violation of constitutional rights, why a judge wouldn't be a lot more interested than Judge Albright appears to be in stopping it, or at least putting that preliminary injunction in place. Stop the harm from happening. And then he just seems scared that if puts a stop or a kibosh on what the government's doing, that the government somehow won't be able to enforce the securities laws anymore; but all they have to do is go back to what they were doing before. This isn't rocket science.

Margot Cleveland: And I would actually put the blame on the government here for telling the judge we're going to be changing this, and not acknowledging that the points that we're trying to make, the points that we're challenging, they have no desire to change. I think that the government is inappropriately using their reputation with a federal judge to get the stay. And the courts often, when the government comes in and says we're reconsidering this, the judge doesn't want to rule on something that's going to be moot. The government shouldn't be presenting that as the argument, because it really, in good faith, is not what the government's looking at.

Mark Chenoweth: Well, then I would just say if anybody out there is listening to this and knows Chairman Atkins at the Securities Exchange Commission and owns stock, and doesn't appreciate the fact that their Fourth Amendment rights are being violated on a daily basis, maybe share that with Chairman Atkins, and encourage him to get in control of this case; and either shut the whole thing down, or let this lawsuit go forward, so can get a decision from the Western District of Texas, and from the Fifth Circuit on the legality of what the SEC is doing.

Because I think it's very clear that the SEC is way out over its skis here. The Fourth Amendment violations. This isn't me. You said this was former Attorney General Bill Barr saying that the CAT sweep is unprecedented and would take us far down the road toward an Orwellian surveillance state. That is the former Attorney General of the United States. And John, Bill Barr is no extremist on these sorts of things. He's a law and order guy.

John Vecchione: He is, and that shows how close this is to a general warrant. Because even he does not think that this is what you should be doing, and I thought that Margo's story about them going through everybody's lockers, for instance, is exactly right. These documents are kept in bits and bytes, just like they used to be kept in paper, and whatever they used to have to get to search paper is what they should have to do to search bits and bytes.

And the fact that they don't say that, and that the judge is allowing to go on, this is how you get a perfect surveillance state. Because more and more is going to be transferred into bits and bytes, and if there's no protections for those bits and bytes, then there's no protections for your papers and effects.

Mark Chenoweth: Imagine if instead of the CAT operating the way it is, that the SEC hired a bunch of agents to just go out to all these brokerages and rifle through paper. You think maybe that would be looked at differently by a judge? Or rifle through your desk at your house, where you keep your Fidelity records and so forth. You think maybe a judge would look at that differently? It's the same search, Your Honor. It's the same search. And the fact that that doesn't seem to be getting through is –

John Vecchione: It's worse than the same search. This goes to how quickly things can be done by computer, and how you can use algorithms to then search all the information and find various patterns. It's not the same search, because the ability to –

Mark Chenoweth: Yeah, it's worse.

John Vecchione: – mutate the information is even more powerful.

Mark Chenoweth: Absolutely right. And that gets into the First Amendment violation as well, because when they get all this information about your stock transactions, some of those transactions are donations, which could be donations to nonprofit organizations, churches, whatever else. That's a violation of your First Amendment rights as well, and the government's sucking up all of this information, and it has no right at all to do this. I'm getting a little heated about this, because I just find –

Margot Cleveland: If you get a government who wants to weaponize the criminal justice system, they can find out who's donating to whatever cause they just don't like, and then make them a target for criminal prosecution. That's a huge problem as well. I have to say that I smiled when you made the comment that Bill Barr is no extremist here, he's a law-and-order guy. That's my position too, and I'm outraged by the Fourth Amendment violation here, that this can't be any more clear. Law and order. Not this strict libertarian, but this is so clear that you just can't justify it.

Mark Chenoweth: This is not borderline conduct. This is way over the line, into complete and utter violation of sacrosanct Fourth Amendment rights that Americans have –

Margot Cleveland: Absolutely.

Mark Chenoweth: – for completely innocent conduct that they're engaged in, i.e., buying stock and selling stock.

Margot Cleveland: Absolutely.

Mark Chenoweth: The government has no right to track all of that information, and the fact that they're doing it, I think, is very troubling. I said if you have Chairman Atkins ear; well, if you have President Trump's ear, you might want to let him know that his SEC is doing something that the Obama administration started, and that the Biden administration was behind.

I'm sorry, sir, why is your administration going along with the Obama-Biden approach to violating people's Fourth Amendment rights when it comes to stock transactions? I would think that President Trump would be smarter than that. Maybe somebody in his administration should get a handle on what's happening over at the SEC as well.

Margo, thank you so much for joining us and talking to us about the Davidson v. Atkins case, the troubling developments in that case, the ongoing violation of people's Fourth Amendment rights. NCLA will stay on this, and we will, despite the six-month delay that we didn't ask for last time, and this new six-month delay that we didn't want, we're gonna stay on this case. I know you will, Margo, and we will try to vindicate everyone's Fourth Amendment rights. And we'll keep you posted on what's happening in the meantime. Thanks for being with us, Margo.

Margot Cleveland: Thanks so much.

Mark Chenoweth: You've been listening to "Unwritten Law."

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Duration: 25 minutes