SEC’s lease of unneeded office space subject of second hearing

House lawmakers are expected on Wednesday to grill federal regulators over a decision by the Securities and Exchange Commission to spend more than $550 million to rent office space it didn’t need. 

SEC Chairman Mary Schapiro and David Kotz, the SEC’s inspector general, who released a scathing report in May over the deal to lease 900,000 square feet of space before having the necessary funding in hand, will testify before the House Transportation and Infrastructure subcommittee on Economic Development, Public Buildings and Emergency Management, the second hearing in less than a month on the matter. 

“Unfortunately, examples of waste abound in our management of federal real property, but the SEC’s massive half-a-billion-dollar lease for space it did not need goes far beyond mismanagement,” said Rep. Jeff Denham (R-Calif.), chairman of the subpanel.  

“It is hard to comprehend how easily the SEC can just commit to spending over $500 million of the American people’s money and have no answers when questioned by Congress,” he said, prompting the need for a second hearing to get more details.

Kotz’s report showed that the agency’s Office of Administrative Services “conducted a deeply flawed and unsound analysis to justify the need for the SEC to lease” the building and that “OAS grossly overestimated” the amount of space needed for the SEC’s intended new headquarters, including an estimated 800 new workers at a cost of $557 million over 10 years. 

Witnesses in the report described an environment “in which inexperienced senior management make unwise decisions without any input from employees with significant knowledge and experience.”

According to the report, Schapiro was opposed to the deal and wanted new employees placed in regional offices, a point she’ll most likely make during the hearing. 

The report found that the SEC also might have violated the Anti-Deficiency Act by committing the agency to spend funds Congress hadn’t approved. 

At the last hearing, on June 16, lawmakers slammed the SEC’s decision to lease the space in anticipation of getting full budget funding to expand under the Dodd-Frank financial law. 

Under Dodd-Frank, the SEC’s budget is expected to be covered by fees collected from the financial industry, beginning next year.

Not only is the SEC taking heat from lawmakers, the landlord of the building says the agency owes them nearly $94 million in damages allegedly caused by its actions. 

During that same meeting, Kotz said he thought the reason for obtaining the lease in the renovated former Transportation Department headquarters was for “a beautiful space with fancy views.”

Jeffery Heslop, SEC’s chief operating officer, said during that June hearing that it was obvious by the fall of 2010 that a fiscal 2011 continuing resolution going through Congress wouldn’t include funds to hire additional staff, and so the commission withdrew from the lease and found substitute federal tenants that don’t depend on congressional appropriations for their leases, including the Office of the Comptroller of the Currency and the Federal Housing Finance Agency.

While acknowledging that the SEC made mistakes in obtaining the lease, Heslop pointed out that the SEC hasn’t paid any rent. 

Rep. Eleanor Holmes Norton (D.C.), the panel’s top Democrat, said she was shocked about the details surrounding the lease, and will press for passage of legislation to revoke the SEC’s authority to manage its own leases. The General Services Administration manages most leases for the federal government.