Securities and Exchange Commission Inspector General David Kotz suggested in testimony on Wednesday that the agency’s leasing agents may be subject to criminal inquiry for their handling of a 10-year lease on a mostly empty building that cost taxpayers more than $500 million.
Appearing before the House Transportation and Infrastructure Public Buildings Subcommittee, it was the second time the SEC has been called before Congress to defend the lease of the Constitution Center in Washington, which is only one-third occupied.
SEC Chairwoman Mary Schapiro told the subcommittee that the lease was an overreaction to what the agency thought would be increased workloads after the passage of the Dodd-Frank financial-reform law in 2010.
"I don't disagree that this was done in an anticipatory way and should not have been done in that way," Schapiro said.
But that assertion drew sharp questioning from Subcommittee Chairman Jeff Denham, R-Calif., who pointed out that Dodd-Frank was signed into law in late July 2010, while the SEC sought to procure the prime piece of real estate in early June.
"How did things go so wrong in one month [June] when Dodd-Frank hadn't even passed?" Denham asked.
The behavior most worthy of criminal investigation, however, may have come later. Members of the SEC's legal counsel office may have backdated the data to prove they could see a need for the space in June.
Schapiro admitted fault in not digging harder for answers from her leasing agents and for not insisting that they shop around more, but she said the immediate need for space, as it was described to her, justified the decision to sign a sole-source lease without a cancellation clause—essentially becoming a hostage to the landlord.
Following the hearing, Denham said he was more convinced of the need for Congress to exercise more control over leasing agencies.