The internal watchdog of the Securities and Exchange Commission has found that the agency made "irresponsible" decisions in leasing a large office space in downtown Washington for $556.8 million without a competitive bidding process and before it received funds from Congress.
An investigation by the SEC inspector general found that the agency's 10-year lease of 900,000 square feet of space in the upscale building, signed last July, was "another in a long history of missteps and misguided leasing decisions" since 1990. Inspector General David Kotz recommended disciplinary action against administrative officials involved in the leasing decision.
The report released Tuesday was another black eye for an agency that was embarrassed by its failure to detect Bernard Madoff's multibillion-dollar Ponzi scheme and other regulatory breakdowns.
Kotz's office also is investigating the SEC's handling of David Becker, the agency's former general counsel, who benefitted financially from Madoff's scheme and was allowed to play a key role in crafting policy on how Madoff's victims should be compensated.
The report on the lease at Constitution Center found that between last June and July the SEC's Office of Administrative Services made a "deeply flawed and unsound analysis" to justify the need for 900,000 square feet, and "grossly overestimated" the amount of space needed. The analysis was based on estimates of increased funding from Congress to meet new duties for the SEC under the financial overhaul law that Congress enacted in July, the report said.
The administrative office "made grandiose plans to lease an upscale facility at Constitution Center," it said.
However, it noted, Congress authorizing funding for a federal agency doesn't guarantee that the agency will receive the money under the congressional budget process. In this case, the SEC's administrative office inflated its estimate of how many newly created staff positions would need space by also including the number of contractors, interns and temporary staff.
The SEC isn't funded by taxpayers. Its funding comes from fees paid by public companies and other entities that register stock with the agency. However, a portion of the revenue it collects goes to the Treasury Department for the government's coffers. And Congress must approve the SEC's annual budgets.
Last fall, when it became apparent that the SEC wouldn't get sufficient funds from Congress for the current fiscal year for the additional staff, the agency told the owner of Constitution Center that it didn't need about 600,000 square feet of the total it had leased. In January, the owner signed leases with two other federal agencies for 558,000 square feet of the total. In March, the SEC said it was trying to sub-lease the remaining 342,000 square feet; those efforts continue, according to the report.
Now the SEC is in a dispute with the owner, who is seeking $93.9 million in damages from the agency, the report said. The SEC denies that it owes any compensation. The agency maintains that its agreement enabling the owner to lease space to the two other agencies released it from any obligations for the space.
The SEC is reviewing Kotz's report, agency spokesman John Nester said Tuesday.
The agency has taken steps to improve its leasing operations, Nester said, including requiring future leasing decisions to be approved by the chief operating officer and reducing the amount of office space allotted to contractors.