Arthur Levitt Explains SEC's Planned Anti-Fraud Webcrawler

(April 6, 2000) SEC Chairman Arthur Levitt responded to criticism of the SEC's plans to use a webcrawler to search for securities fraud on the Internet.

The Securities and Exchange Commission recently released a Request for Proposals for an automated Internet search system, or webcrawler, to look for potential securities fraud online. The SEC currently has individuals surfing the web looking for violations of the securities laws.

The ACLU objected.

Arthur Levitt

SEC Chairman Arthur Levitt responded in a statement released on April 5. He stated that "Some are concerned that the Commission intends to monitor private Internet communications. These concerns appear to be based on a misunderstanding about what we seek to do. I want to make clear that the SEC has never had any intention of intercepting or monitoring private transmissions, including conversations taking place in chat rooms or on e-mail, in the pursuit of Internet fraud."

Levitt continued that "Commission staff, as permitted by law, access only electronic materials that are "readily accessible to the general public," both when conducting investigations and when engaging in other Commission business. The RFP simply seeks the ability to automate and customize these same searches of public sites that are already accessible to the general public through commercial search engines. This is no different, in both manner and scope, than finding a newspaper article with the aid of a tool that helps you do so more quickly and exactly."

Levitt concluded that "the Commission has taken significant steps to protect investors from securities fraud on the Internet. I regard these efforts as vital to ensuring the fairness and integrity of our markets. We will continue to undertake these efforts mindful and respectful of fundamental privacy rights."

The Electronic Privacy Information Center (EPIC) wrote in its most recent edition of "EPIC ALERT" that "[t]e SEC's plan would utilize webcrawlers to browse and record statements made in chat rooms, bulletin boards, and web pages based on undisclosed keywords. In the process of storing publicly posted statements, the webcrawler would also attempt to collect personal information to identify posters who often attempt to maintain their anonymity. While the SEC currently takes these steps manually in attempts to thwart potential securities fraud, the automation of the process would potentially extend the reach of the federal agency into activities that could violate the Privacy Act of 1974."

The ACLU wrote harsher words in a letter to Chairman Levitt on April 4. The letter stated that "[t]he Internet has become a very potent tool for ordinary people with limited resources to communicate with audiences both vast and small. Americans should be able to continue to use that tool without fear of government monitoring of lawful speech."

The ACLU letter continued that "the Electronic Communications Privacy Act of 1986 (ECPA) sets out a traditional probable cause standard for the surveillance of Internet transmissions."

"In addition, the Privacy Act places a number of limitations on the way the government gathers and handles personal data. Among other things, the Act prevents Federal agencies from willfully maintaining records on citizens without meeting stringent requirements."

Moreover, "[w]idespread trawling of the Internet will inevitably result in the collection of First Amendment protected speech."