The Epicurus Institute has filed a formal objection to the Securities and Exchange Commission’s Proposal No. S7-08-10.

A copy of the proposal may be downloaded here or viewed directly on the SEC’s website here.

The objections were raised over a variety of privacy issues, among others, with the extensive and complex proffer concerned with Asset Backed Securities.

The Institute believes that the privacy concerns we expressed are intended to protect the rights of borrowers (obligors) in loans and lines of credit. The release of any private information or failure to secure pathways to private data could result in release of such information as identity papers (driver’s licenses, passports), employment information, salary, social security numbers, and even signatures, all of which are found in UCC filings, which are in the realm of public record. While county clerks – the custodians of UCC filings – take extraordinary care about documenting the release of private information, the SEC’s proposal could cause that information to become available in geo-mapping. Literally, at the point and click of a mouse, someone could print personal, private information. That, we felt, was far too risky.

Additionally, we expressed our concerns that the Commission did not properly distinguish the difference between a prospective investor and one with an actual investment. We contend that a prospective investor has less rights to full asset-level data disclosure, as many of the proposed data points go far beyond anything necessary for investment decision-making.

Further, we believe the Commission’s plans to offer a waterfall computer program, permitting market participants to make asset-level data available in raw format to investors will cause serious problems for the securities industry and in particular, to the Asset Backed Securities markets.  We believe that in its raw format, only institutional investors will be capable of proper analysis of the data, as the cost of developing tools for this purpose may add extreme and unacceptable costs to individual and smaller institutional investors. By isolating smaller investors, the Commission inadvertently makes it necessary for small investors to rely upon ratings agencies – the antithesis of their stated intent.

In regard to privacy concerns, we believe the acknowledged risks within the SEC proposal could result in many violations of privacy, including data-mining, identity theft and other crimes. Our concern here is not only for the benefit of the consumer, but also for the risks these crimes would pose to the banking industry, and consequently for liquidity and availability of credit.

Consumers adversely affected by the inappropriate release of private information by lenders would have little choice but to file legal actions against their lender for that initial release of data and failure to protect their privacy rights. The volume of such legal actions could clog the courts for decades.

While it is not our intent to object to the entire proposal, we also expressed our grave concerns that it favors a trade association which represents many of the market players that played a negative role in the financial crisis. We expressed our objection to the release, prematurely, of asset-level data to the members of that association, as such information could result in naked short selling, an activity that contributed greatly to the near collapse of the international economy.

Other organizations, such as Consumer’s Union, SIFMA, World Securitization Forum and many more also commented, stating for the record their objections which appear, in large part, to coincide with those comments made by The Institute.

We believe this proposal to mandate that lenders and others violate privacy laws, not only within the United States, but internationally. It is, we hold, illegal for the Commission to compel, mandate or even recommend that any individual or enterprise violate any law.  On this basis, we expect that at some future point, one or more identity theft victims will file lawsuits resulting in injunctive relief from the SEC’s rules amending Regulation AB.

Though hundreds of responses to the Commission’s proposal are on file, it is our hope that our objection will be seriously considered and that the serious points we’ve raised will be given due and proper consideration before rule-making is finalized.

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