S.E.C. Leased Unneeded Space, Report Says

WASHINGTON — The Securities and Exchange Commission leased $556 million worth of office space last year based on a “deeply flawed and unsound analysis” of its needs, without competitive bids and using backdated approval forms to justify its rushed attempt to rent the offices, according a report by the agency’s inspector general released Tuesday.

The report, dated May 16 and posted Tuesday on the commission’s Web site, concludes that the S.E.C. may have violated federal law by committing the agency to lease office space before Congress had appropriated enough money to pay for the 10-year contract.

The actions “represent another in a long history of missteps and misguided leasing decisions made by the S.E.C. since it was granted independent leasing authority by Congress in 1990,” H. David Kotz, the S.E.C. inspector general, wrote in the report.

John Nester, an S.E.C. spokesman, said in a statement that the agency was “currently reviewing” the report. But it already has instituted some changes, he said. The changes include requiring leasing decisions to be approved by the agency’s chief operating officer, a recently created position, and acquiring a system that automates the square footage needs of the agency, “so that management is better able to calculate spacing.”

The leases for more than 900,000 square feet of office space, plus an option on 500,000 square feet more, came after Congress passed the Dodd-Frank act, which greatly expanded the S.E.C.’s role in financial regulation. The agency estimated that it would need to hire 800 staff members over the next two years to put into effect the new regulations required by the law.

Congress authorized a doubling of the S.E.C.’s budget over the next five years to pay for the additional duties, but it didn’t appropriate the money. Nevertheless, officials in the S.E.C.’s Office of Administrative Services leased the space.

In October, less than three months after signing the lease, the S.E.C. tried to give back two-thirds of the space, and in March of this year, it said it was trying to sublease the remainder of the offices. The owner of the building has asserted that the S.E.C. owes nearly $100 million in damages for its actions, which the S.E.C. disputes.

Part of the supporting documentation justifying the signing of a lease without competition was falsified, the inspector general found. A “justification and approval report” was not completed until a month after the lease was signed, but documents were pre-signed or altered to make it appear that the leasing authority was in place, the report said.

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