OIG Report Analyzes SEC's Costly Missteps in Massive Office Space Lease

To the list of problems now facing the SEC add the following: "Improper Actions Relating to the Leasing of Office Space." That is the title of the latest report by the SEC's Inspector General, H. David Kotz, which probes the circumstances surrounding the SEC's lease contract for 900,000 square feet of space at the Constitution Center facility in Washington, D.C. in July 2010. The OIG report calls the matter "another in a long history of missteps and misguided leasing decisions made by the SEC since it was granted independent leasing authority by Congress in 1990."

In short, after Dodd-Frank was passed, the SEC estimated that it would need to add another 800 positions in FY 2011 and FY 2012 to implement its new responsibilities. Dodd-Frank also authorized an increase in the agency's budget from the $1.11 billion appropriated in FY 2010 to $1.3 billion in FY 2011, $1.5 billion in FY 2012, and $2.25 billion by FY 2015. The OIG found that believing increases to its budget were on the way, the SEC made "grandiose plans" to lease the upscale facility at Constitution Center. 

Based on a "deeply flawed and unsound analysis" by the SEC's Office of Administrative Services, the agency  justified entering into a lease for 900,000 square feet of space at Constitution Center facility. OIG says that the analysis "overestimated the amount of space needed at SEC Headquarters for the SEC's projected expansion by more than 300 percent and used these groundless and unsupportable figures to justify the SEC committing to an expenditure of $556,811,589 over 10 years."

Three months later, however, in October 2010, the SEC informed the landlord that it did not need approximately 600,000 of the 900,000 square feet it had leased. The landlord was able to lease 558,000 square feet of the space to other agencies, but to date, the SEC has not been successful in sub-leasing the remaining space. The OIG report states that as a result, the SEC and the landlord are currently in a dispute over the landlord's assertion of damages of just under $94 million.