Case 6:24-cv-00197-ADA Document 94 Filed 11/15/24 Page 1 of 68
`
`IN THE UNITED STATES DISTRICT COURT
`FOR THE WESTERN DISTRICT OF TEXAS
`WACO DIVISION
`
`
`
`
`
`
`Civil Action No. 6:24-cv-00197-ADA-
`DTG
`
`
`PLAINTIFFS’ MOTION FOR
`LEAVE TO FILE AN AMENDED
`COMPLAINT
`
`
`ERIK DAVIDSON, JOHN RESTIVO & NATIONAL
`CENTER FOR PUBLIC POLICY RESEARCH,
`
` Plaintiffs,
`
`v.
`
`GARY GENSLER, et al.,
`
` Defendants.
`
`
`PLAINTIFFS’ MOTION FOR LEAVE TO FILE AN AMENDED COMPLAINT
`
`
`
`
`Mark Siegmund
`State Bar Number 24117055
`CHERRY JOHNSON SIEGMUND
` JAMES, PLLC
`400 Austin Avenue
`Suite 903
`Waco, TX 76701
`Tel: (254) 732-2242
`MSiegmund@CJSLAW.com
`
`
`
`
`
`
`
`
`
`Margaret A. Little CT303494
`Andrew J. Morris*
`Margot J. Cleveland*
`NEW CIVIL LIBERTIES ALLIANCE
`4250 N. Fairfax Dr., Suite 300
`Arlington, VA 22203
`Tel: (202) 869-5210
`Fax: (202) 869-5238
`Peggy.Little@ncla.legal
`Andrew.Morris@ncla.legal
`Margot.Cleveland@ncla.legal
`*Admitted Pro Hac Vice
`
`Counsel for Plaintiffs
`
`1
`
`

`

`Case 6:24-cv-00197-ADA Document 94 Filed 11/15/24 Page 2 of 68
`
`Pursuant to Rule 15(a)(2) of the Federal Rules of Civil Procedure, Plaintiffs respectfully
`
`move the Court for leave to file the attached Proposed Amended Complaint for Declaratory,
`
`Injunctive, and Mandamus Relief (“Proposed Amended Complaint”).
`
`Plaintiffs filed the initial Complaint, ECF No. 1, on April 16, 2024, alleging that SEC
`
`adopted Rule 613 without statutory authority, and that Rule 613 unconstitutionally mandates the
`
`mass collection of Americans’ personal financial data. See ECF No. 1, ¶¶ 114–78, 193–203. On
`
`May 24, 2024, pursuant to Rule 65(a) of the Federal Rules of Civil Procedure, Plaintiffs moved
`
`for a stay and a preliminary injunction ordering Defendants and any individuals to stay the rules
`
`and orders of the SEC effectuating the CAT, and to enjoin enforcement of rules, orders, and
`
`penalties under the CAT scheme by Defendants. See ECF No. 25-1. On July 12, 2024, Defendants
`
`filed a combined motion to dismiss and opposition to Plaintiffs’ motion for preliminary injunction
`
`and stay. See ECF Nos. 38, 39. On August 15, 2024, Plaintiffs filed a response to Defendants’
`
`motions to dismiss and reply brief. See ECF No. 42. On September 18, 2024, Defendants filed a
`
`reply in support of their motions to dismiss. See ECF Nos. 83–84. On October 24, the Court issued
`
`a memorandum of decision denying Plaintiffs’ Motion for a Stay or Preliminary Injunction.
`
`This Complaint was filed on April 16, 2024. On July 19, 2024, SEC announced its
`
`formation of an Interagency Security Council (ISC) launched with “representatives from more
`
`than 100 departments and agencies, including federal agencies, state offices of attorneys general
`
`and state police, and local police departments and sheriff’s offices” through which SEC will
`
`“connect and share information with the larger law enforcement community[.]”1 This new
`
`initiative greatly expands the potential reach and recipients of information obtained from Plaintiffs
`
`
`1 Press Release, SEC Launches Interagency Securities Council to Coordinate Enforcement
`Efforts Across Federal, State, and Local Agencies (July 29, 2024), available at
`https://archive.ph/MrsZN. Copy also attached to this motion as Exhibit A.
`
`2
`
`

`

`Case 6:24-cv-00197-ADA Document 94 Filed 11/15/24 Page 3 of 68
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`and similarly situated Americans. Leave to amend is sought in order to add this new initiative to
`
`the Complaint.
`
`Through the Proposed Amended Complaint, Plaintiffs also seek to set forth more
`
`comprehensively their Fourth and Fifth Amendment counts. See ECF No. 1, ¶¶ 143–78. Rule 613
`
`implicates the Fourth Amendment’s protection against unreasonable searches and seizures of
`
`Americans’ papers and effects. Rule 613 further implicates the Fifth Amendment’s general bar
`
`against the production of self-incriminatory documents. Plaintiffs have also added case citations
`
`to controlling Fifth Circuit and Supreme Court authority in the Amended Complaint for greater
`
`clarity of presentation.
`
`The parties conferred on November 12 and 13, 2024. Defendants SEC and CAT LLC have
`
`taken no position at this time on the requested amendment, but both defendants have stated that
`
`they will review the motion and will respond in due course as permitted under the local rules.
`
`Rule 15 provides that “a party may amend its pleading only with the opposing party’s
`
`written consent or the court’s leave” and “[t]he court should freely give leave when justice so
`
`requires.” Fed. R. Civ. P. 15(a)(2). Further, “[t]he court should freely permit an amendment when
`
`doing so will aid in presenting the merits and the objecting party fails to satisfy the court that the
`
`evidence would prejudice that party's action or defense on the merits.” Fed. R. Civ. P. 15(b)(1).
`
`“Although ‘leave to amend is by no means automatic,’ a court should ‘possess a substantial reason
`
`to deny leave to file an amended complaint.’” Blair v. Home Depot U.S.A., Inc., No. MO:21-cv-
`
`00252, 2022 WL 21606152, at *1 (W.D. Tex. Nov. 17, 2022) at *1 (quoting Lawton v. Osado
`
`Water Transfer Co., LLC, No. MO:15-cv-00189, 2016 WL 11586133, at *1 (W.D. Tex. Sept. 15,
`
`2016)); see also Marucci Sports, L.L.C. v. Nat’l Collegiate Athletic Ass’n, 751 F.3d 368, 378 (5th
`
`Cir. 2014). Permitting Plaintiffs to file the Proposed Amended Complaint would not cause any
`
`
`
`3
`
`

`

`Case 6:24-cv-00197-ADA Document 94 Filed 11/15/24 Page 4 of 68
`
`substantial or undue prejudice or delay at this early stage of litigation. Plaintiffs seek to clarify the
`
`constitutional claims under existing precedent as well as bring to this Court’s attention the ISC
`
`summoned into being by SEC after the Complaint was filed. The creation of the ISC by SEC
`
`demonstrates that criminal proceedings are likely under this rule, enhancing the Fourth and Fifth
`
`Amendment interests at stake. The creation of the ISC also significantly broadens the number of
`
`persons and agencies that will have access to and information from the CAT database.
`
`For all the reasons stated above, Plaintiffs respectfully request that the Court grant
`
`Plaintiffs leave to file the attached Amended Complaint (which is submitted in redline2 fashion)
`
`and to extend the Defendants’ time to answer or otherwise reply as the court finds appropriate. A
`
`proposed order accompanies this motion.
`
`Dated: November 15, 2024
`
`Respectfully Submitted,
`
`
`Mark Siegmund
`State Bar Number 24117055
`CHERRY JOHNSON SIEGMUND
` JAMES, PLLC
`400 Austin Avenue
`Suite 903
`Waco, TX 76701
`Tel: (254) 732-2242
`MSiegmund@CJSLAW.com
`
`
`
`/s/ Margaret A. Little
`Margaret A. Little CT303494
`Andrew J. Morris*
`Margot J. Cleveland*
`NEW CIVIL LIBERTIES ALLIANCE
`4250 N. Fairfax Dr., Suite 300
`Arlington, VA 22203
`Tel: (202) 869-5210
`Fax: (202) 869-5238
`Peggy.Little@ncla.legal
`Andrew.Morris@ncla.legal
`Margot.Cleveland@ncla.legal
`*Admitted Pro Hac Vice
`
`Counsel for Plaintiffs
`
`
`2 Certain paragraphs from the original Complaint, ECF 1, were arranged under different headings
`in the Amended Complaint. Paragraphs 115, 116, 117, 118, 119, 120, 121, 122, 123, 124, 125, 126
`in the Original Complaint are: Paragraphs 123, 124, 126, 127, 128, 119, 120, 121, 122, 118, 129,
`130–31, respectively, in the Amended Complaint.
`4
`
`
`
`

`

`Case 6:24-cv-00197-ADA Document 94 Filed 11/15/24 Page 5 of 68
`
`CERTIFICATE OF SERVICE
`
`The undersigned hereby certifies that the foregoing Motion for Leave to File an Amended
`
`Complaint, and accompanying Proposed Order and Proposed Amended Complaint, was filed with
`
`this Court’s electronic filing system on November 15, 2024. Service upon all counsel of record in
`
`this case will be made using the notice of docket activity generated by this Court’s CM/ECF
`
`system.
`
`Dated: November 15, 2024
`
`
`
`
`
`
`
`
`
`
`
`
`
`/s/ Margaret A. Little
`
`
`
`5
`
`

`

`Case 6:24-cv-00197-ADA Document 94 Filed 11/15/24 Page 6 of 68
`
`Case 6:24-cv-00197-ADA Document94_ Page6of 68Filed 11/15/24
`
`
`EXHIBIT A
`EXHIBIT A
`
`

`

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`SEC Launches Interagency Securities
`Council to Coordinate Enforcement Efforts
`Across Federal, State, and Local Agencies
`
`FOR IMMEDIATE RELEASE
`
`2024-86
`
`The Securities and Exchange Commission’s Division of Enforcement this
`Washington D.C., July 19, 2024 —
`month launched the Interagency Securities Council (ISC), which invites federal, state, and local regulatory
`and law enforcement professionals to meet quarterly to discuss the latest in scams, trends, frauds, and
`mitigation strategies.
`The ISC’s objective is to strengthen the cohesion between federal, state, and local agencies, enhance
`opportunities to collaborate on cases to protect investors, provide insight and guidance across the
`ecosystem to those who may not frequently operate in this space, and create a forum for unified efforts
`in combatting financial fraud.
`The ISC launched with representatives from more than 100 departments and agencies, including federal
`agencies, state offices of attorneys general and state police, and local police departments and sheriff’s
`offices.
`“The Interagency Securities Council will help front line investigators stay abreast of emerging threats and
`fact patterns to protect their communities from securities fraud, while supporting the efforts of federal,
`state, and local law enforcement partners across the country,” said Gurbir S. Grewal, Chair of the ISC and
`Director of the SEC’s Division of Enforcement.
`“As financial frauds become more complex, investors benefit from the government – at all levels –
`working together and sharing information to protect and inform the public,” said Cristina Martin Firvida,
`the SEC’s Investor Advocate.
`About the Interagency Securities Council
`
`

`

`The ISC is open to law enforcement and regulatory agencies, and members participate in discussions
`with experts on emerging threats, hear from investigators conducting and supervising investigations, and
`Case 6:24-cv-00197-ADA Document 94 Filed 11/15/24 Page 8 of 68
`explore case study examples of agencies employing innovative approaches to combat financial fraud.
`The ISC also serves as an opportunity to connect and share information with the larger law enforcement
`community that less frequently deals with securities law violations, such as police/sheriff departments
`and tribal- and military-community law enforcement. 
`The SEC’s efforts on the council will be led by Adam Anicich and Manuel Vazquez.
`Contact
`To learn more about this initiative, or to enroll your department or agency, please contact ISC@sec.gov.
`
`###
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`Case 6:24-cv-00197-ADA Document 94 Filed 11/15/24 Page 9 of 68
`Case 6:24-cv-00197-ADA Document94_
`Filed 11/15/24
`Page 9 of 68
`
`EXHIBIT B
`EXHIBIT B
`
`

`

`Case 6:24-cv-00197-ADA Document 94 Filed 11/15/24 Page 10 of 68
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`IN THE UNITED STATES DISTRICT COURT
`FOR THE WESTERN DISTRICT OF TEXAS
`
`
`
`
`
`ERIK DAVIDSON,
`
`
`
`
`
`&
`
`
`
`JOHN RESTIVO,
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`
`v.
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`
`
`
`
`
`
`
`
`
`
`GARY GENSLER,
`
`
`in His Official Capacity as
`
`Chairman, U.S. SECURITIES
`AND EXCHANGE COMMISSION,
`
`
`
`
`
`
`
`
`&
`
`
`
`
`
`
`
`
`
`U.S. SECURITIES AND EXCHANGE
`COMMISSION,
`
`
`
`
`
`
`
`
`
`
`
`&
`
`
`
`
`
`
`
`
`
`CONSOLIDATED AUDIT TRAIL, LLC,
`
`
`
`
`
`
`Defendants.
`
`
`:
`:
`:
`:
`:
`:
`:
`
`
`
`&
`
`
`:
`
`
`
`
`
`
`
`:
`NATIONAL CENTER FOR PUBLIC
`
`:
`POLICY RESEARCH,
`
`
`CIVIL ACTION NO.: 6:24-cv-00197
`:
`
`
`
`
`
`
`
`:
`
`
`
`
`
`
`AMENDED CLASS-ACTION
`:
`Plaintiffs,
`
` : COMPLAINT FOR
`:
`DECLARATORY, INJUNCTIVE,
`:
`AND MANDAMUS RELIEF
`:
`:
`:
`:
`:
`:
`:
`:
`:
`:
`:
`:
`:
`:
`:
`:
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`
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`AMENDED COMPLAINT
`
`This lawsuit concerns an unprecedented scheme by an administrative agency, the Securities
`
`and Exchange Commission (SEC), to unilaterally set in motion one of the greatest government-
`
`mandated mass collections of personal financial data in United States history: the Consolidated
`
`Audit Trail (CAT). Without any statutory authority, SEC adopted a regulation, Rule 613, that
`
`

`

`Case 6:24-cv-00197-ADA Document 94 Filed 11/15/24 Page 11 of 68
`
`
`
`forces brokers, exchanges, clearing agencies, and alternative trading systems (ATS) to capture data
`
`on every investor’s trades, from inception to completion. The data is then stored in a centralized
`
`database that SEC and private regulators can mine for data and analyze in perpetuity. Thousands
`
`of people—many of them not even in the government—will have access to this information.1 No
`
`one can opt out of this forced disclosure. Brokers cannot opt out, and neither can Americans
`
`executing their own trades, unless they stop trading in U.S. markets. This surveillance database
`
`reportedly would be the largest database of securities data ever created,2 and the largest database
`
`outside the NSA.3 Unlike NSA, however, SEC entirely lacks the authority, history, or special
`
`oversight structure that permits it to engage in the seizure and surveillance of private information.
`
`The Panopticon Is Here
`
`At the time of the French Revolution, the British philosopher Jeremy Bentham coined the
`
`term “Panopticon” to describe the terror of a prison wherein all inmates would be subject to 24-
`
`hour surveillance by an unseen observer.4 Such a system was unthinkable for free people, yet today
`
`SEC’s scheme frighteningly seizes the personally identifiable record of “every order, cancellation,
`
`modification and trade execution for all exchange-listed equities and options across all U.S.
`
`
`1 Oversight of the Status of the Consolidated Audit Trail, Hearing Before the S. Comm. on Banking,
`Hous., and Urb. Affs., 116th Cong. (2019) (Testimony of Shelly Bohlin, COO of FINRA CAT
`LLC), available at https://perma.cc/G49S-GR3G
`2 Secs. Indus. and Fin. Mkts. Ass’n (“SIFMA”) , Comment Letter Addressing Notice of Filing
`Amendment to the Nat’l Mkt. Sys. Plan Governing the Consolidated Audit Trail at 2 (Jun. 30,
`2022), available at https://perma.cc/2Y5Y-AK4H.
`3 Implementation and Cybersecurity Protocols of the Consolidated Audit Trail: Hearing Before
`the Subcomm. on Cap. Mkts, Secs, and Inv., H. Comm. On Fin. Servs., 115th Cong. 2 (Nov. 30,
`2017) (statement of Rep. Bill Huizenga, Chairman, Subcomm. on Cap. Mkts, Securities and
`available
`at
`Investment),
`https://www.govinfo.gov/content/pkg/CHRG-
`115hhrg31288/pdf/CHRG-115hhrg31288.pdf.
`4 Jeremy Bentham, Panopticon; or, the Inspection House (1791).
`
`
`
`2
`
`

`

`Case 6:24-cv-00197-ADA Document 94 Filed 11/15/24 Page 12 of 68
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`
`
`markets”5 for everyone who trades on an American exchange.—a At least the Panopticon applied
`
`only to persons imprisoned for a crime. Nothing in the securities laws gives the SEC power to
`
`regulate investment decisions of Americans nor to gather all investment data from them or their
`
`brokers.
`
`Historically, a government that wished to track its citizens had to devote large resources to
`
`having them followed. That is no longer the case: modern surveillance tools enable mass tracking
`
`of individuals’ every movement, every transaction, every purchase, sale, or transfer of securities
`
`at low cost while powerful computer algorithms can process that information to reveal personal
`
`and private details of each person’s financial life or investment strategy. With technological
`
`surveillance and data-processing technology becoming ever cheaper and increasing exponentially
`
`in power—witness the growth in the power of AI and bots over our electronic lives—the only
`
`things that stand in the way of this Orwellian “Big Brother” are our laws and our courts. This class-
`
`action complaint challenges SEC’s shocking arrogation of power to impose dystopian surveillance,
`
`suspicionless seizures, and real or potential searches on millions of American investors.
`
`The Founders’ Vision
`
`The Framers of the Constitution ensured protection of “persons, houses, papers, and
`
`effects” from “unreasonable searches and seizures.” U.S. CONST. amend. IV. Knowing all too well
`
`how such seizure of papers imperiled their own liberty, the Framers would scarcely believe the
`
`unbridled power SEC seeks to exert through the CAT. By seizing innocent Americans’ private
`
`financial information and storing it in a giant database that allows broad access by government and
`
`non-governmental persons or entities alike, SEC—a mere administrative agency—has conjured
`
`
`5 Press Release, SEC Approves New Rule Requiring Consolidated Audit Trail to Monitor and
`Analyze Trading Activity (July 11, 2012), available at https://perma.cc/R9H3-V5QD.
`
`
`
`3
`
`

`

`Case 6:24-cv-00197-ADA Document 94 Filed 11/15/24 Page 13 of 68
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`
`
`into being exactly what the Constitution was written to prevent. Equally troubling and
`
`unreasonable, this vulnerable warehouse of seized information also exposes data lawlessly
`
`extracted from every investing American to easy onslaught from known cybersecurity threats,
`
`domestic and foreign, including even the possible theft of their holdings.6 These assets comprise
`
`the core of Main Street investors’ financial security, which is essential to their individual liberty,
`
`wealth, well-being, and personal security. The government has no license to put these interests at
`
`risk. To the contrary, the Constitution expressly prohibits uncaging this CAT.
`
`“The Fourth Amendment refers to ‘papers’ because the Founders understood the seizure of
`
`papers to be an outrageous abuse distinct from general warrants.” Donald A. Dripps, “Dearest
`
`Property”: Digital Evidence and the History of Private “Papers” As Special Objects of Search
`
`and Seizure, 103 J. Crim. L. & Criminology 49, 52 (2013). Thus, “[i]f one goes back to the early
`
`Republic … it is difficult to find any federal executive body that could bind subjects to appear,
`
`testify, or produce records.” Philip Hamburger, Is Administrative Law Unlawful? 221 (Univ. of
`
`Chi. Press 2014). Indeed, it was so well established at common law that “[p]apers are the owner’s
`
`goods and chattels” and “are his dearest property” that “it may be confidently asserted that [these]
`
`propositions were in the minds of those who framed the fourth amendment to the constitution, and
`
`were considered as sufficiently explanatory of what was meant by unreasonable searches and
`
`seizures.” Boyd v. United States, 116 U.S. 616, 626-28 (1886) (first and second quotations quoting
`
`Entick v. Carrington, 19 How. St. Tr. 1029 (1765)). The Supreme Court therefore recognized that
`
`“a compulsory production of a man’s private papers” is the same as “[b]reaking into a house and
`
`
`6 Letter from Seven Senators to SEC Chair (July 24, 2019), available at https://perma.cc/3KSA-
`WEPT.
`
`
`
`
`4
`
`

`

`Case 6:24-cv-00197-ADA Document 94 Filed 11/15/24 Page 14 of 68
`
`
`
`opening boxes and drawers,” and constitutes an unlawful “invasion of his indefeasible right of
`
`personal security, personal liberty and private property[.]” Id. at 622, 630.
`
`While the Constitution made clear the government lacks the authority to peek into—much
`
`less seize and keep a permanent record of the content of—a person’s private papers without a
`
`warrant, SEC has now arrogated the power to demand government seizure of everyone’s private
`
`trading information without any judicial process and without any suspicion of wrongdoing.
`
`The Stakes Are High
`
`
`
`This case requires this court to exercise its Article III duties to declare CAT
`
`unconstitutional under the Vesting Clause, art. I, §1; the Taxing and Appropriations Clauses of
`
`Article I; and the First, Fourth, and Fifth Amendments. Where Americans and American entities,
`
`like Erik Davidson, John Restivo (“Individual Plaintiffs”), and NCPPR, invest in the securities
`
`markets, they do not “‘voluntarily assume[] the risk’ of [the party] turning over” the details of their
`
`personal investment activity for review by SEC. Carpenter v. United States, 138 S. Ct. 2206, 2220
`
`(2018) (first alteration in original) (quoting Smith v. Maryland, 442 U.S. 735, 745 (1979)). Indeed,
`
`Americans expect and have thus far enjoyed the opposite assumption—that the third party and the
`
`government will respect their contractual and constitutional rights. Defendants have unlawfully
`
`violated those rights, liberties, and expectations, in defiance of the Constitution, as set forth below.
`
`Further, the CAT scheme is unlawful because no statute confers authority on SEC to engage
`
`in this conduct at all. Indeed, no statute could confer such authority—the First, Fourth, and Fifth
`
`Amendments forbid it.
`
`Appropriations and Spending by the Executive
`
`The CAT scheme further violates the Constitution and laws of the United States because it
`
`bypasses Congress’ power of the purse and erects a multi-billion-dollar scheme in which SEC self-
`
`
`
`5
`
`

`

`Case 6:24-cv-00197-ADA Document 94 Filed 11/15/24 Page 15 of 68
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`
`
`appropriates these billions by extracting funds from self-regulatory organizations, or SROs, such
`
`as Financial Industry Regulatory Authority, also known as FINRA, to fund and operate a scheme
`
`never authorized by Congress. This scheme of spending without appropriation imposes enormous
`
`costs on American capital markets (reported to be at least $2.4 billion to implement and $1.7 billion
`
`to operate each year as of the last detailed report in 2016)7 and is a brazen end-run around the
`
`Constitution and laws of the United States, including the Anti-Deficiency Act and the
`
`Miscellaneous Receipts Act, which dictate that the legislature alone can raise, receive or spend
`
`money or contributions. Alexander Hamilton explained that in a constitutional order that assigns
`
`the lawmaking and appropriations powers to the legislature, “no money can be expended, but for
`
`an object, to an extent, and out of a fund, which the laws have prescribed.” (Emphases in original).
`
`Alexander Hamilton, Explanation, in The Works of Alexander Hamilton, Vol. 8, p.128 (Henry
`
`Cabot Lodge ed., 2d ed. 1903).
`
`This lawless enterprise has been many years in the planning, with a record of misfeasance,
`
`malfeasance and incompetence that alone would justify its cessation.8 Whether it could ever be
`
`
`7 Joint Industry Plan; Order Approving the Nat’l Mkt. Sys. Plan Governing the Consolidated Audit
`Trail, Release No. 34-79318 (Nov. 15, 2016), 81 Fed. Reg. 84,696, 84,863 (Nov. 23, 2016). Initial
`estimates for the costs of implementation and maintenance of the Consolidated Audit Trail have
`climbed considerably and have become more opaque. See Examining the Agenda of Regulators,
`SROs, and Standards-Setters for Accounting, Auditing: Hearing Before the H. Subcomm. on Cap.
`Mkts, 118th Cong. (2023) (Testimony of Robert Cook, President and CEO, FINRA) (“The initial
`estimates for CAT were based on an assumption about how much volume there would be,
`essentially. Those estimates turned out to be way off. We are now seeing volumes that are ten
`times what they were estimated to be, and of course volume translates to processing costs, storage
`costs
`for
`data,
`and
`so
`naturally
`the
`costs
`are
`higher.”)
`https://www.youtube.com/live/aduHWUfuLJg?si=HEzBeVZhWBFjca3n&t=5877 (beginning at
`1:37:57)).
`8 See, e.g., James Rundle & Anthony Malakian, CAT’s Tale: How Thesys, the SROs and the
`SEC Mishandled the Consolidated Audit Trail, WatersTechnology (Feb. 14, 2019) (setting
`forth a detailed and disturbing history of a scheme that never had any lawful basis for its
`inception), https://perma.cc/V8VJ-ZTUK.
`
`
`
`6
`
`

`

`Case 6:24-cv-00197-ADA Document 94 Filed 11/15/24 Page 16 of 68
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`
`
`successfully launched was in doubt for the better part of a decade. As late as October 2019, SEC
`
`Commissioner Hester Peirce warned that “[i]mplementation is now on course to begin soon.” She
`
`sounded the warning: “but it is not too late to change course.”9
`
`Defendants are now finalizing and instituting this lawless and ill-advised enforcement
`
`regime. Defendants’ unconstitutional, unlawful, and ultra vires conduct violates the civil liberties
`
`of Plaintiffs and inflicts on-going, and imminent future irreparable harm on Plaintiffs, our
`
`Constitution, and the civil liberties of all Americans. Accordingly, pPlaintiffs, as named Class
`
`Representatives, bring this facial and as-applied challenge seeking injunctive and mandamus relief
`
`on behalf of themselves and a class of similarly situated individuals.
`
`SEC’s Violations Injure a Large Class of Plaintiffs
`
`Plaintiffs, as named Class Representatives, bring this action on behalf of a class of
`
`similarly situated individuals: all individuals for whom the CAT database contains any securities
`
`transaction information, or any personally identifiable information, that refers or relates to the
`
`individual or to a securities account associated with the individual.
`
`PARTIES
`
`1.
`
`Plaintiff National Center for Public Policy Research (“NCPPR”) is organized under
`
`the laws of Delaware and has its principal place of business in Washington, DC. NCPPR, through
`
`its Free Enterprise Project, invests in securities traded on U.S. exchanges, and NCPPR’s private
`
`investment information has been, and will continue to be, unconstitutionally seized by Defendants.
`
`2.
`
`Plaintiffs Erik Davidson and John Restivo are natural persons and residents of the
`
`State of Texas. Each of them invests in securities traded on U.S. exchanges, and the each’s private
`
`
`9 Hester Peirce, This Cat is a Dangerous Dog, RealClearPolicy (Oct. 9, 2019), available at
`https://perma.cc/B5BJ-A6RF.
`
`
`
`7
`
`

`

`Case 6:24-cv-00197-ADA Document 94 Filed 11/15/24 Page 17 of 68
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`
`
`investment information has been, is expected to be, and/or will continue to be unconstitutionally
`
`seized by Defendants.
`
`3.
`
`Defendant Gary Gensler is the Chairman of the Securities and Exchange
`
`Commission and is sued in his official capacity.
`
`4.
`
`Defendant SEC is an agency of the United States, which has forced the
`
`unreasonable seizure of Plaintiffs’ private financial information.
`
`5.
`
`Defendant Consolidated Audit Trail, LLC (CAT LLC) is a Delaware limited
`
`liability corporation formed on August 29, 2019, to administer the CAT on behalf of the SEC.
`
`CAT LLC is sued as a Defendant and in the alternative, if CAT LLC did not engage in state action
`
`as an agent of SEC, as a Relief Defendant.
`
`JURISDICTION AND VENUE
`
`6.
`
`This Court has federal question jurisdiction pursuant to 28 U.S.C. §§ 1331 (federal
`
`question) and 1361 (actions in the nature of mandamus).
`
`7.
`
`This Court has the authority to grant declaratory and injunctive relief in this matter
`
`pursuant to 28 U.S.C. §§ 2201 and 2202.
`
`8.
`
`Venue for this action properly lies in this district pursuant to 28 U.S.C.
`
`§§ 1391(b)(2), (e)(1)(C) because the Individual Plaintiffs reside in this judicial district, a
`
`substantial part of the events or omissions giving rise to the claim occurred in this judicial district,
`
`and because the owners of the property at issue in this action are situated in this judicial district.
`
`
`
`8
`
`

`

`Case 6:24-cv-00197-ADA Document 94 Filed 11/15/24 Page 18 of 68
`
`
`
`STATEMENT OF FACTS
`
`I.
`
`THE CONSOLIDATED AUDIT TRAIL
`
`A.
`
`SEC’s Limited Statutory & Investigative Authority
`
`9.
`
`In 1934, Congress established SEC to “protect[] investors, maintain[] fair, orderly,
`
`and efficient markets, and [to] facilitate[e] capital formation.”10 Nothing in this organic statute, or
`
`any subsequent enactment of Congress, authorizes the lawless and unconstitutional CAT scheme.
`
`10.
`
`From the day in 1934 when Congress created SEC, the agency’s ability to obtain
`
`private citizens’ confidential information has been carefully constrained—limited by substantive
`
`and procedural requirements. Those requirements also reflect the constitutional imperative that the
`
`only authority SEC possesses is the authority Congress granted it by statute.
`
`11.
`
`True to those limitations, for the past 50 years the primary procedure for SEC to
`
`obtain some information about private citizens’ stock trading has been to make valid “blue sheet
`
`requests” to broker-dealers. See SEC Enforcement Manual § 3.2.2 (Nov. 28, 2017) (“Blue sheets”).
`
`To make a valid blue-sheet request, SEC first must have an articulable basis to investigate possible
`
`violations of the securities laws, id., a basis it can develop from reviewing the extensive daily
`
`market surveillance data that is available to it. The scope of the underlying investigation limits the
`
`scope of the blue-sheet request because each request is limited to the securities and the time frame
`
`on which the investigation focuses. Id. This lawsuit does not challenge SEC’s use of blue sheets.
`
`12.
`
`Historically, SEC also obtained trading information by issuing investigative
`
`subpoenas. By statute, Congress expressly authorized—and limited—this process. See, e.g.,
`
`Securities Act of 1933, Pub. L. No. 73-22, 48 Stat. 74 § 19(c) (2023) (codified at 15 U.S.C.
`
`§ 77s(c)); Exchange Act of 1934, Pub. L. No. 73-291, 48 Stat. 881 § 21(b) (2023) (codified at 15
`
`
`10 SEC Mission Statement, SEC
`https://www.sec.gov/about/mission.
`
`(last visited Mar. 18, 2024), available at
`
`
`
`9
`
`

`

`Case 6:24-cv-00197-ADA Document 94 Filed 11/15/24 Page 19 of 68
`
`
`
`U.S.C. § 78u(b)). As with the blue sheets, SEC must begin with some facts indicating a possible
`
`violation of the law. See, e.g., Securities Act of 1933, § 19(c), 15 U.S.C. § 77s(c) (referring to
`
`“investigations”); Exchange Act § 21(b), 15 U.S.C. § 78u(b) (same). Under its procedures, SEC
`
`then can issue a “formal order of investigation,” followed by an investigative subpoena. See SEC
`
`Enforcement Manual § 2.3.3. By statute, each subpoena’s scope is limited to “books, papers, or
`
`other documents” that are “material to the inquiry.” See, e.g., Securities Act § 19(c), 15 U.S.C.
`
`§ 77s(c) (referring to “investigations”); Exchange Act § 21(b), 15 U.S.C. § 78u(b) (same). Also,
`
`by statute, to enforce a subpoena, SEC must file a court action and obtain an order from a federal
`
`judge. See Exchange Act § 21(c), 15 U.S.C. § 78u(c). This lawsuit does not challenge SEC’s use
`
`of investigative subpoenas.
`
`B.
`
`Rule 613 and the Flash Crash
`
`13.
`
`In 2010, SEC saw an opportunity to bypass these longstanding safeguards. On May
`
`6 of that year, the securities markets experienced the “Flash Crash,” during which major stock
`
`indices plunged as much as 15% in a few minutes, before rebounding almost as quickly.
`
`14.
`
`In a September 30, 2010, report entitled Findings Regarding the Market Events of
`
`May 6, 2010, SEC attributed the Flash Crash to a mutual fund complex using an algorithm to hedge
`
`existing equity positions.11
`
`15.
`
`Just 20 days after the Flash Crash, and prior to issuing its Report on the Flash Crash,
`
`SEC issued a 203-page release proposing Rule 613 and the creation of the Consolidated Audit
`
`Trail. Exchange Act Release No. 34-62174, File No. S7-11-10 (May