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Justice Dept. Weighs Action Against SEC over Lease

July 7, 2011 ( The Justice Department is considering whether to prosecute Securities and Exchange Commission employees over the agency's handling of a $557 million lease for downtown Washington offices that it could not afford and did not need, the agency's inspector general said Wednesday.

Inspector General H. David Kotz said he recently referred the matter to the Justice Department for potential investigation. The department requested relevant documents, Kotz said.

Kotz said his referral focused on the backdating of a document used to justify the lease. Kotz made that disclosure at the end of a House hearing in which lawmakers lambasted SEC Chairman Mary Schapiro over the lease.

In a May report, the inspector general said the SEC entered the lease based on inflated assumptions. After the hearing, Kotz explained by e-mail that he refers matters to the Justice Department "when there is reasonable grounds to believe there has been a violation of Federal criminal law."

The agency signed the lease last year without competitive bidding, anticipating that Congress would approve funding to cover a major hiring spree after increasing the agency's responsibilities.

Congress gave the agency a much larger role as part of legislation responding to the financial crisis, but it did not deliver the expected budget increase.

Rep. Jeff Denham (R-Calif.), chairman of a subcommittee with jurisdiction over public buildings, said he could not understand why the agency committed to the 10-year lease before an appropriation. "The agency made a terrible mistake here," Schapiro testified. "I view myself as being ultimately responsible."

Denham said he also wanted to know why Schapiro approved the lease in a 10-minute, unscheduled meeting. Denham noted the plan was at odds with two of Schapiro's stated objectives: hiring many employees in so-called regional offices around the country, and keeping new District offices within walking distance of the agency's headquarters near Union Station. Schapiro said an SEC staff member told her that it was a good deal and that she had to approve the lease for a building called Constitution Center on an emergency basis because the agency had no other options in the District.

"I've never even seen the Constitution Center space," Schapiro said. "I did not know that they had selected a building that was not within walking distance of the agency. And I certainly didn't know that my express wish that we move as many employees as possible to the regions was not being honored."

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