SEC signed for $557M in office space it didn't need

The U.S. Securities and Exchange Commission conducted a “deeply flawed and unsound analysis” to justify a $556.8 million lease for office space it turned out was largely unneeded, an investigation by the agency's inspector general found. The report by Inspector General David Kotz, released today by the SEC, also accused agency officials of backdating a document to obscure a missed deadline. The owner of the Constitution Center in Washington, David Nassif Associates, is seeking to recover what the firm said was $94 million in costs for the botched deal, the report said. SEC officials rushed to secure 900,000 square feet of space last year after the 2010 Dodd-Frank Act suggested it might be able to hire hundreds of new employees to enforce new regulations. In a June 3 e-mail, well before the lease agreement was signed, an employee with the SEC's Office of Financial Management, called the agency's staffing estimates “SWAG projections” -- standing for “stupid wild-ass guess,” the report said. Eventually, the agency informed the owner that it couldn't use two-thirds of the space. The lease deal assumed the agency would receive the entire $1.3 billion 2011 authorization included in Dodd-Frank, ignoring the political likelihood the midterm elections would allow a new majority of House Republicans to resist budget increases, the report said. “Even if those assumptions had been well-founded and a reasonable basis for leasing space, justifiable projections for the SEC's expansion at Headquarters based on those assumptions would not have supported leasing 900,000 square feet,” it said. SEC Review SEC Chairman Mary Schapiro has asked her chief operating officer to review the report, said John Nester, an SEC spokesman. A senior executive-level facilities management oversight committee is being created to review “all major leasing decisions,” Nester said. Regarding the $94 million claim by the building's owner, “the agency does not believe any damages are owed,” Nester said. Kotz's 91-page report recommended that at least one agency official, Sharon Sheehan, associate executive director of the SEC's Office of Administrative Services, be disciplined “up to and including dismissal” for “the gross overestimation of the amount of space needed at SEC Headquarters.” Sheehan declined to comment. Kotz declined to comment further on the investigation. --Bloomberg News--