[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]





                THE SECURITIES AND EXCHANGE COMMISSION'S
               $500 MILLION FLEECING OF AMERICA: PART TWO

=======================================================================

                                (112-43)

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
    ECONOMIC DEVELOPMENT, PUBLIC BUILDINGS, AND EMERGENCY MANAGEMENT

                                 OF THE

                              COMMITTEE ON
                   TRANSPORTATION AND INFRASTRUCTURE
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                              JULY 6, 2011

                               __________

                       Printed for the use of the
             Committee on Transportation and Infrastructure








         Available online at: http://www.gpo.gov/fdsys/browse/
        committee.action?chamber=house&committee=transportation


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             COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE

                    JOHN L. MICA, Florida, Chairman

DON YOUNG, Alaska                    NICK J. RAHALL II, West Virginia
THOMAS E. PETRI, Wisconsin           PETER A. DeFAZIO, Oregon
HOWARD COBLE, North Carolina         JERRY F. COSTELLO, Illinois
JOHN J. DUNCAN, Jr., Tennessee       ELEANOR HOLMES NORTON, District of 
FRANK A. LoBIONDO, New Jersey        Columbia
GARY G. MILLER, California           JERROLD NADLER, New York
TIMOTHY V. JOHNSON, Illinois         CORRINE BROWN, Florida
SAM GRAVES, Missouri                 BOB FILNER, California
BILL SHUSTER, Pennsylvania           EDDIE BERNICE JOHNSON, Texas
SHELLEY MOORE CAPITO, West Virginia  ELIJAH E. CUMMINGS, Maryland
JEAN SCHMIDT, Ohio                   LEONARD L. BOSWELL, Iowa
CANDICE S. MILLER, Michigan          TIM HOLDEN, Pennsylvania
DUNCAN HUNTER, California            RICK LARSEN, Washington
ANDY HARRIS, Maryland                MICHAEL E. CAPUANO, Massachusetts
ERIC A. ``RICK'' CRAWFORD, Arkansas  TIMOTHY H. BISHOP, New York
JAIME HERRERA BEUTLER, Washington    MICHAEL H. MICHAUD, Maine
FRANK C. GUINTA, New Hampshire       RUSS CARNAHAN, Missouri
RANDY HULTGREN, Illinois             GRACE F. NAPOLITANO, California
LOU BARLETTA, Pennsylvania           DANIEL LIPINSKI, Illinois
CHIP CRAVAACK, Minnesota             MAZIE K. HIRONO, Hawaii
BLAKE FARENTHOLD, Texas              JASON ALTMIRE, Pennsylvania
LARRY BUCSHON, Indiana               TIMOTHY J. WALZ, Minnesota
BILLY LONG, Missouri                 HEATH SHULER, North Carolina
BOB GIBBS, Ohio                      STEVE COHEN, Tennessee
PATRICK MEEHAN, Pennsylvania         LAURA RICHARDSON, California
RICHARD L. HANNA, New York           ALBIO SIRES, New Jersey
JEFFREY M. LANDRY, Louisiana         DONNA F. EDWARDS, Maryland
STEVE SOUTHERLAND II, Florida
JEFF DENHAM, California
JAMES LANKFORD, Oklahoma
REID J. RIBBLE, Wisconsin
CHARLES J. ``CHUCK'' FLEISCHMANN, 
Tennessee

                                 _____

 Subcommittee on Economic Development, Public Buildings, and Emergency 
                               Management

                   JEFF DENHAM, California, Chairman
TIMOTHY V. JOHNSON, Illinois         ELEANOR HOLMES NORTON, District of 
ERIC A. ``RICK'' CRAWFORD,               Columbia
    Arkansas,                        HEATH SHULER, North Carolina
  Vice Chair                         MICHAEL H. MICHAUD, Maine
RANDY HULTGREN, Illinois             RUSS CARNAHAN, Missouri
LOU BARLETTA, Pennsylvania           TIMOTHY J. WALZ, Minnesota
BOB GIBBS, Ohio                      DONNA F. EDWARDS, Maryland
PATRICK MEEHAN, Pennsylvania         BOB FILNER, California
RICHARD L. HANNA, New York           NICK J. RAHALL II, West Virginia
CHARLES J. ``CHUCK'' FLEISCHMANN,      (Ex Officio)
    Tennessee
JOHN L. MICA, Florida (Ex Officio)

                                  (ii)














                                CONTENTS

                                                                   Page

Summary of Subject Matter........................................    iv

                               TESTIMONY

Kotz, Hon. H. David, Inspector General, U.S. Securities and 
  Exchange Commission............................................     4
Schapiro, Hon. Mary L., Chairman, U.S. Securities and Exchange 
  Commission.....................................................     4

               PREPARED STATEMENTS SUBMITTED BY WITNESSES

Kotz, Hon. H. David..............................................    30
Schapiro, Hon. Mary L............................................    38

                       SUBMISSION FOR THE RECORD

Letter from Hon. Mary L. Schapiro, Chairman, U.S. Securities and 
  Exchange Commission, to Hon. Jeff Denham, a Representative in 
  Congress from the State of California, clarifying information 
  on p. 10, paragraphs 15-17 of this hearing, which has been 
  reformatted from the original transcript for publication and 
  attached for reference. The passage appeared in the original 
  transcript on page 25, lines 556 to 566, as indicated in Hon. 
  Schapiro's letter..............................................    47








 
                      THE SECURITIES AND EXCHANGE
                       COMMISSION'S $500 MILLION
                     FLEECING OF AMERICA: PART TWO

                              ----------                              


                        WEDNESDAY, JULY 6, 2011

                  House of Representatives,
       Subcommittee on Economic Development, Public
               Buildings, and Emergency Management,
            Committee on Transportation and Infrastructure,
                                                    Washington, DC.
    The subcommittee met, pursuant to call, at 3:17 p.m., in 
room 2167, Rayburn House Office Building, Hon. Jeff Denham 
(chairman of the subcommittee) presiding.
    Mr. Denham. The subcommittee will come to order.
    First, let me thank Chairman Schapiro of the SEC for being 
here today to testify on this important subject; and I would 
like to welcome back Mr. Kotz, the SEC inspector general, and 
thank him again for all the work his office has done in 
investigating the SEC's use of leasing authority.
    On June 16th, the subcommittee held a hearing regarding the 
SEC's leasing of over 900,000 square feet of space at 
Constitution Center in DC. We expected to get answers to some 
basic questions as to how and why the SEC managed to bind the 
taxpayer to more than $500 million in lease payments for space 
the SEC did not even need. Sadly, we didn't get very many 
answers last hearing, despite having the SEC's chief operating 
officer and general counsel both testify. Few of our questions 
were answered.
    In the private sector, if an employee bound their company 
to a contract costing over $500 million it did not need, that 
company would want to know the facts to determine who all 
should be held accountable and how to prevent it from happening 
again.
    Federal agencies should be held to an even higher standard 
as, ultimately, it's the American people who pay for their 
costly mistakes. While the IG who is here to testify today did 
a thorough job in his investigation on this lease, our 
subcommittee expected to be able to get answers directly from 
Agency leadership at our last hearing.
    Some of the basic questions that were raised included:
    How and why did the SEC in the course of just 1 month more 
than triple the size of its space requirement?
    Why did the SEC believe it was appropriate to base a 
procurement of a new lease on an estimated number of new 
employees for which there was no approved funding?
    Why did the SEC assume all of the new employees would be in 
DC, when Chairman Schapiro had previously indicated nearly half 
would be assigned to the regional offices?
    Why didn't the COO or other officials at the SEC ask 
questions regarding the increase in projected lease payments?
    What facts substantiated the SEC's decision to sole-source 
contract?
    Why was a sole-source contract worth more than $500 million 
negotiated over the course of just a couple of days?
    Why didn't the lease contract include any clauses to 
protect the taxpayer, such as a cancellation clause?
    And why is there nothing in writing that would show a 
formal internal approval of such a massive lease?
    These are some of the basic questions that still have not 
been answered.
    I would like to say for the record that since the June 
hearing Chairman Schapiro has taken steps to try and ensure 
that as many of these questions as possible were answered 
before this hearing today. However, information that would help 
to shed more light on how this particular lease was signed 
remains illusive; and it still remains unclear how or why, 
Chairman Schapiro, as head of the Agency, you verbally approved 
a $500 million lease based on a 10-minute unscheduled meeting.
    As I mentioned at the June hearing, the IG report is 
breathtaking. It is inconceivable that the SEC bound the 
taxpayer to more than a half billion dollars based on back-of-
the-envelope calculations that were inflated and just simply 
wrong. And it is more disturbing that such a lease was signed 
without any informal internal written approval, no OMB 
approval, and no congressional approval. And, on top of that, 
the SEC proceeded with a sole-source contract negotiated over 
the course of just a few days based on a justification document 
that was backdated and altered.
    As the IG noted in the last hearing, it appears someone at 
the SEC saw Constitution Center and decided that that's where 
they wanted the SEC to move, regardless of the cost to the 
taxpayer. And sadly, as pointed out in June, we know this is 
not the first time SEC has mismanaged its leasing authority. 
Previous IG and GAO reports have shown that the SEC has a 
history of making bad decisions when it comes to leasing.
    Our subcommittee has been working on a bipartisan basis to 
cut waste when it comes to our Federal buildings, even clamping 
down on waste and excess building in the Federal courthouse 
program. The Civilian Property Realignment Act that I 
introduced earlier this year is intended to decrease the 
Federal space footprint, putting more people in less space. 
This legislation would also revoke the SEC's ability to make 
this mistake again. And the current administration, just over a 
month before the SEC signed this lease, issued a directive to 
Federal agencies to reduce space.
    Reducing waste and Federal real property has been and 
remains a priority, and it is unclear why the SEC didn't get 
it. So I hope today we get the answers.
    I would now like to recognize Ranking Member Norton from 
the District of Columbia for 5 minutes to make any opening 
statements she may have.
    Ms. Norton. Thank you, Mr. Chairman.
    We welcome today's witnesses to a second hearing on the May 
16, 2011, report of the Securities and Exchange Commission 
Office of Inspector General on a lease by the Agency of a large 
office building in Washington, DC.
    Last month's hearing and the IG report painted a picture of 
an agency that was ill-equipped to engage in real estate 
transactions and consequently developed a culture that allowed 
bureaucrats to make major unsupported financial commitments; 
and, as a result, serious abuses occurred that could result in 
subsequent action against the employees involved, according to 
the IG's May 16th report.
    To directly address this problem, I've introduced H.R. 
2390, a bill that would remove leasing authority from the SEC.
    Today's hearing will allow SEC Chair Mary Schapiro and SEC 
IG David Kotz to testify on the status of the IG report and to 
learn what actions have been taken to mitigate the damages 
caused by the unauthorized leasing. We also will hear what 
progress has been made on holding accountable any employees for 
their roles in the lease.
    The SEC chair has indicated that she agrees that the SEC 
should not be engaged in leasing activity. Real estate is 
outside of SEC's core mission of regulating America's security 
systems, protecting investors, and particularly as challenged 
to issue and implement the rules and regulations of Dodd-Frank.
    Apart from the lease that sparked the IG report, the SEC 
has shown over the years that leasing is a function well 
outside of the Agency's expertise. H.R. 2390 reflects the SEC's 
chair's own counsel that the SEC should remain exclusively 
focused on its core mission.
    It is my understanding that the SEC chair has met with the 
General Services Administrator to ask the GSA to assume the 
SEC's real estate functions, as GSA does for most Federal 
agencies.
    The first subcommittee hearing on this lease was thorough, 
covering the background and facts that lead to the IG report. 
Neither the SEC nor any party has disputed the underlying facts 
in the report. The SEC's corrective action plan in response to 
that report concurred with all of the IG's recommendations that 
indicated a commitment to executing the necessary remedial 
actions. Mainly missing from last hearing were details of the 
corrective action taken by the SEC. I look forward to hearing 
those details today, and I thank our witnesses for testifying.
    Thank you, Mr. Chairman.
    Mr. Denham. Thank you.
    I now call on chairman of the full committee, Mr. Mica.
    Mr. Mica. Well, thank you, Chairman Denham and Ranking 
Member Norton, for, first of all, your diligence in pursuing 
this matter and conducting these hearings at a time when we're 
facing some of the worst deficits in the Nation's history and 
struggling financially.
    It's almost incredible to learn of an agency that spun out 
of control, and it is almost incredible--half a billion dollars 
in space for committing the Federal Government for 10 years to 
pay for space based on what appears to be inflated staff 
numbers, a space need probably violating not only the rules of 
acquisition, procurement, or leasing but in violation of 
competitive contracting rules, ignoring, not consulting 
properly the Office of Management and Budget, violating 
antideficiency regulations of entering into leases. Again, very 
least, a questionable basis, but, again, it is astounding.
    I hope that this hearing highlights what's taken place. We 
don't need this to ever happen again.
    We also are stuck with an obligation. Now we're finding 
spaces are being filled--attempted to be filled. We find an 
obligation of maybe $93 million in some deficiencies with the 
landlord. Again, I just don't think you could paint a worse 
scenario for obligating, again, taxpayer funds to any venture I 
have seen.
    When Mr. Denham, myself, and Ms. Norton struggle to locate 
space for agencies and to relocate or acquire a space, to 
consolidate, we run into all obstacles. Maybe we should figure 
out how we could maybe enlist the SEC in handling some of these 
things. Unfortunately, while they are able to do it quickly and 
obligate substantially, it takes us years to even get small 
projects under way.
    So I find this, again, just an outrageous misuse of public 
resources at a very difficult economic time. I am pleased you 
are pursuing this. We need to make certain a law is crafted and 
a regulation so that it doesn't happen again. And then, if we 
are obligated to this space, certainly I have some ideas on how 
it could be properly utilized; and I will work with the 
subcommittee and the committee in that regard.
    I yield back the balance of my time.
    Mr. Denham. Thank you.
    Today, we'll ask that our witnesses provide testimony under 
oath. I would ask the witness to please stand and raise their 
right hand to be sworn in under oath.
    Do you swear that the testimony you are about to provide to 
the subcommittee is the truth, the whole truth, and nothing but 
the truth, so help you God?
    Thank you.
    Our first and only panel will be the Honorable Mary 
Schapiro, chairman, U.S. Securities and Exchange Commission, 
and the Honorable David Kotz, inspector general, U.S. 
Securities and Exchange Commission.
    I ask unanimous consent that our witnesses' full statements 
be included in the record.
    Without objection, so ordered.
    Since your testimony has been made part of the record, the 
subcommittee would request that you limit your oral testimony 
to 5 minutes.
    Chairman Schapiro, you may begin.

  TESTIMONY OF THE HONORABLE MARY L. SCHAPIRO, CHAIRMAN, U.S. 
SECURITIES AND EXCHANGE COMMISSION; AND THE HONORABLE H. DAVID 
     KOTZ, INSPECTOR GENERAL, U.S. SECURITIES AND EXCHANGE 
                           COMMISSION

    Ms. Schapiro. Chairman Denham, Ranking Member Norton, 
members of the subcommittee, thank you for the opportunity to 
testify today regarding the SEC's lease of office space at 
Constitution Center and the steps we are taking going forward.
    Like the report of the Commission's Office of Inspector 
General, the subcommittee's previous hearing identified 
significant flaws in the SEC's leasing processes. I'm extremely 
disappointed by those failures and regret that they have taken 
us all away from our primary mission of protecting investors, 
facilitating capital formation, and insuring stability in the 
financial markets.
    The fact that the SEC has not paid any rent to date for 
this property and that the bulk of the space has been leased to 
other tenants does not adequately address a situation that 
should never have occurred. The only appropriate response by 
the SEC is to resolve the remaining space issues, to correct 
the deficiencies in our leasing processes by working with GSA 
and OMB with respect to future space needs, and to ensure 
accountability for the events surrounding this lease.
    By way of background, in the spring of 2010, the SEC 
correctly anticipated it would receive significant new 
responsibilities under the Dodd-Frank for derivatives, hedge 
fund advisors, creating credit rating agencies, and much more. 
This was, of course, on top of our longstanding core 
responsibilities. As a result, we believed and continue to 
believe that the SEC needed additional staff to fulfill its 
mission and to help further restore investor confidence in our 
markets.
    At the time the Agency was considering the leasing 
decisions, I indicated my preference for hiring new staff in 
the regions, rather than at headquarters. And, I indicated to 
staff my preference that any new space in Washington be within 
walking distance of our Station Place buildings to eliminate 
the need for expensive shuttle services.
    With respect to Commission matters in which I'm not an 
expert, I provide overall policy goals and instructions and 
leave it to the professional staff to execute them consistent 
with my instructions. Throughout my time, I have found the 
professional staff across the Agency to be extremely dedicated 
to their mission and knowledgeable in their areas of expertise.
    In July of 2010, staff informed me that all of our other 
leasing options no longer existed, that the space at 
Constitution Center was our only option, that the pricing was 
advantageous, and that we had to move quickly, as there was 
competition for the space. Given my previous discussions with 
staff, I assumed the proposal was consistent, both with our 
budget projections for future employee growth and my preference 
for staff to be housed where possible in the regions. When it 
subsequently became clear that the SEC would not receive the 
funding necessary to implement its new responsibilities, we 
took immediate steps to release the space to others and reduce 
the SEC's exposure.
    As chairman of the SEC, I am ultimately responsible for the 
actions of the Agency. My written testimony details how we have 
learned from the problems in our leasing process and how we 
intend to address these issues. I would like to emphasize a few 
of those items.
    First, we are promptly implementing the inspector general's 
recommendations and already have submitted a written corrective 
action plan to the OIG.
    Second, in light of the failures identified and questions 
raised by OIG and the subcommittee, the SEC recognizes the 
benefits of having GSA manage the Commission's future lease 
acquisitions. Leasing is not part of the Commission's core 
mission and as an agency we cannot allow it to impede that 
mission. GSA, by contrast, has long experience and expertise in 
leasing.
    I recently met with the administrator of GSA and, in 
addition to discussing the Constitution Center space, we 
discussed ways in which GSA could assist the Commission on our 
leasing efforts going forward. GSA has indicated it was open to 
playing a significant role in those efforts, and our staffs are 
working on it now.
    After discussions with GSA, we have provided them with a 
draft memorandum of understanding that would provide for GSA to 
undertake all leasing activities on behalf of the SEC.
    Third, the OIG report recommended that the SEC initiate 
disciplinary proceedings for three individuals involved in the 
Constitution Center leasing process, and we have begun that 
process. The Office of General Counsel is actively reviewing 
the record from the OIG investigation and, where necessary, 
supplementing that investigation.
    I've instructed my staff to move as quickly as the laws and 
regulations permit, consistent with fundamental fairness.
    I expect the disciplinary recommendations with regard to 
employees identified by the IG will be made very soon. In the 
meantime, the individuals identified in the IG report have been 
reassigned. Their current duties do not involve leasing or any 
other authority that could bind the Commission, nor do they 
involve duties that relate to the expenditure of appropriated 
funds.
    As I said previously, the true test of an organization is 
not whether things go wrong but how an organization responds to 
problems and whether its leaders take such opportunities to 
make necessary improvements. We are committed to doing that. I 
am, of course, happy to answer any questions that you have.
    Mr. Denham. Thank you, Chairman Schapiro.
    Mr. Kotz, you may----
    Mr. Kotz. Thank you for the opportunity to testify before 
this subcommittee. I appreciate the interest of the chairman, 
the ranking member, and the other members of the subcommittee 
in the SEC and the Office of Inspector General.
    On June 16, 2011, I testified before this subcommittee 
about a May 16, 2011, report of investigation we issued into 
the circumstances surrounding the SEC's decision to lease 
approximately 900,000 square feet of office space at a newly 
renovated office building known as Constitution Center.
    As I described in my previous testimony, we opened our 
investigation on November 16, 2010, as a result of receiving 
numerous written complaints concerning the SEC's decisions and 
actions relating to Constitution Center.
    My previous testimony described in detail our investigative 
efforts, including the review of over 1.5 million emails during 
the course of the investigation and the testimony or interviews 
of 29 individuals with knowledge of facts or circumstances 
surrounding the SEC's leasing activities.
    I also testified concerning the results of our 
investigation, which found that the circumstances surrounding 
the SEC's entering into a lease for 900,000 square feet of 
space at the Constitution Center facility in July 2010, were 
part of a long history of missteps and misguided leasing 
decisions by the SEC since it was granted independent leasing 
authority in 1990.
    We further found that, based on estimates of increased 
funding, primarily to meet the anticipated requirements of the 
Dodd-Frank Act, between June and July 2010, the SEC Office of 
Administrative Services, OAS, conducted a deeply flawed and 
unsound analysis to justify the need for the SEC to lease 
900,000 square feet of space at the Constitution Center 
facility. Specifically, we found that OAS grossly overestimated 
by more than 300 percent the amount of space needed for the 
SEC's projected expansion and used these groundless and 
unsupportable figures to justify the SEC's commitment to the 
expenditure of approximately $557 million over 10 years.
    In my earlier testimony, I described how we found that OAS 
prepared a faulty justification and approval document to 
support entering into the lease for the Constitution Center 
facility without full and open competition. We determined that 
this justification and approval document was prepared after the 
SEC had already signed the contract to lease the facility. 
Further, we found that OAS backdated the justification and 
approval, thereby creating the false impression that it had 
been prepared only a few days after the SEC entered into the 
lease, when in actuality it was not finalized until a month 
later.
    Our report of investigation made numerous recommendations 
designed to ensure that the requisite improvements to policies 
and procedures are made and that appropriate disciplinary 
action is taken. Specifically, we recommended that the SEC's 
chief operating officer conduct a through and comprehensive 
review and assessment of all matters currently under the 
purview of OAS.
    We further recommended that the chief operating officer 
determine the appropriate disciplinary and/or performance-based 
actions to be taken for matters related to findings. We 
specified that such disciplinary actions should include, at a 
minimum, action up to and including dismissal against two 
senior individuals and disciplinary action against a third 
individual.
    Finally, we recommended that the Office of Financial 
Management, in consultation with the Office of General Counsel, 
request a formal opinion from the Comptroller General as to 
whether the Commission violated the Antideficiency Act by 
failing to obligate funds for the lease.
    My office is committed to following up with respect to all 
the recommendations we made in our report to ensure that 
appropriate changes and improvements are made in the SEC's 
leasing operations as a result of our findings.
    Subsequent to the issuance of our report of investigation, 
my office requested and received a corrective action plan with 
regard to the substantive recommendations we made. We will 
monitor the planned activities carefully to ensure that the 
improvements are made. We also intend to monitor the 
disciplinary process to ensure the individuals we identified as 
being responsible for the failures and improprieties described 
in our report are held fully accountable for their actions.
    In addition to these efforts, we have met with the newly 
installed acting head of OAS to provide additional information 
concerning the failings and deficiencies we identified in that 
office. As a result of this briefing, a large renovation 
project that had been initiated by the previous head of OAS has 
now been discontinued.
    We understand that the chief operating officer, under 
Chairman Schapiro's direction, has already begun to implement 
the improvements needed in the SEC's leasing functions. We are 
confident that, under Chairman Schapiro leadership, the SEC 
will continue to review our report and take appropriate steps 
to implement our recommendations and ensure that fundamental 
changes are made in the SEC's leasing operations so that the 
errors and failings we found in our investigation are remedied 
and not repeated in the future.
    Thank you, and I will be happy to answer any questions.
    Mr. Denham. Thank you, Mr. Kotz.
    First of all, Chairman Schapiro, could you just take this 
committee through your responsibilities as chairman of the SEC?
    Ms. Schapiro. Certainly.
    As chairman of the SEC, I have responsibility for setting 
the policy direction in coordination with my four 
commissioners, who are also Presidential appointees confirmed 
by the Senate, for implementing the requirements of the law 
through rulemaking, for administration of a large enforcement 
program for dealing with violations of the Federal securities 
laws by regulated entities and by others, and I have general 
responsibility for the administrative functions of the Agency.
    Mr. Denham. How large is the Agency?
    Ms. Schapiro. We have about 3,900 employees and a budget of 
about $1.2 billion.
    Mr. Denham. And can you walk us through the timeline on the 
lease in question?
    Ms. Schapiro. Yes, I would be happy to.
    In mid-2010 our former executive director communicated a 
need for us to secure additional space in the District of 
Columbia. Under our 2010 appropriation, we were working to hire 
about 550 employees; and our fiscal year 2011 request would 
have supported several hundred additional employees. The day 
after the lease was signed, in fact--and I will go back--the 
appropriations committees actually approved a higher fiscal 
year 2011 appropriation than we had sought or than the 
President had sought that would have supported about 500 more 
employees.
    The Dodd-Frank bill, which became law on July 21st, gave 
the SEC huge additional responsibilities for not only part of 
the $600 trillion over-the-counter derivatives market but also 
for hedge fund registration and oversight as well as additional 
responsibilities with respect to credit rating agencies and 
municipal advisors.
    Mr. Denham. What date did you say Dodd-Frank passed?
    Ms. Schapiro. Dodd-Frank became law on July 21st. So I just 
use that as part of the background about how we were thinking 
about leasing. It was clear in June that we would be given 
significant additional--likely be given significant additional 
responsibilities if Dodd-Frank passed.
    Mr. Denham. So June you started having discussions, 
meetings on the 2010 budget to hire 500 employees and you were 
looking for space for those 500?
    Ms. Schapiro. Under our 2010 appropriation we were already 
working to hire those employees.
    Mr. Denham. And the fiscal year 2011 budget passed and 
there was an additional 500?
    Ms. Schapiro. The budget didn't pass, obviously, until 
much, much later. It would have supported--the request would 
have supported about 380 more employees. And Dodd-Frank also 
authorized a doubling of the Agency's budget between then and 
2015. So it's part of what was going into the thinking of the 
Agency about what our resource needs would likely be.
    In any event, in June, we discussed the options for taking 
additional space in Washington. I was told that there was no 
additional space available in our existing headquarters 
building. I made it very clear that I wanted to move as many 
additional head count as we were able to out to the regional 
offices where the people we regulate work and where the people 
that we serve, investors, live. And that to the extent we 
needed to take additional space in Washington, DC, that it 
should be within walking distance of our headquarters so we 
would not have to pay for an expensive shuttle system.
    I understood that our need for space would be based on our 
budget estimates, which were much more modest than what was 
ultimately projected according to the inspector general's 
report--and that was in June. And I was not told in July, when 
a decision was made to go forward with Constitution Center, 
that the numbers had been dramatically increased. I was not 
walked through how those numbers in fact grew. It was presented 
to me as an emergency situation that we take the space at 
Constitution Center because all the other options we had been 
looking at, I was told, had disappeared, that on a rentable-
square-foot basis, Constitution Center was a very good deal, 
that we had reserved the option in taking that space to 
sublease or assign that space if we were not able to use it.
    And of course I assumed that the decision was fully 
consistent with the wishes that I had expressed and that it was 
fully consistent with our budget projections that had been 
generated our Office of Financial Management. Obviously, as we 
know from the inspector general's report, those numbers became 
greatly inflated between the June timeframe and the July 
timeframe.
    Mr. Denham. I just want to establish for this committee the 
actual timeline of how the lease went down and what happened 
subsequently after that.
    June--you said mid-2010. I'm assuming that's June you 
started having meetings?
    Ms. Schapiro. Probably late spring in 2010. But in June was 
the first meeting where we sat down to talk about what our 
budget projections were and what our options would be within 
the District of Columbia and in terms of moving employees out 
to the regions where we locate most of our examination and 
enforcement staff, which are the two largest parts of the SEC.
    Mr. Denham. The 2010 budget you established a need for how 
many employees?
    Ms. Schapiro. In the 2010 budget--let me give you the exact 
number--550.
    Mr. Denham. Out of those 550, how many were you looking at 
having walking distance from the current SEC building and how 
many were you looking at having in the region?
    Ms. Schapiro. To the extent possible, we were going to put 
the 550 in our existing headquarters space and utilize all of 
that space and then some number--I'm sorry, I have to get you 
an exact number--to go out to the regional offices.
    Mr. Denham. I'm just trying to get a ball park and better 
understand the timeline. How much space do you currently have 
at your current location?
    Ms. Schapiro. About 380 in DC and 170 out to the regions.
    Mr. Denham. And how much space do you have currently?
    Ms. Schapiro. I'm told that currently we have space, I 
believe, for about 500 in Station Place in our existing 
headquarters building.
    Mr. Denham. So you could have accommodated the entire 380 
that you wanted to keep in DC at your current location.
    Ms. Schapiro. Yes, but I was told in June of last year that 
we had no space left in Station Place at all.
    Mr. Denham. Is that where your office is?
    Ms. Schapiro. Yes.
    Mr. Denham. And when did it become apparent you were going 
to need additional space beyond what you had originally 
estimated under the 2010 budget, the 550 new personnel?
    Ms. Schapiro. Well, as we--based on our fiscal year 2011 
request--and I understand that's a request, not an 
appropriation--as well as the new work that was being assigned 
to the Agency under Dodd-Frank, it became clear in the late 
spring that we would need--and into the summer and certainly by 
the middle of the summer after Dodd-Frank passed--that we would 
need significant additional resources to fulfill our 
responsibilities under Dodd-Frank.
    Mr. Denham. OK. Let me see if I can walk through this 
timeline as I understand it.
    Spring, you decided you were going to need new space under 
the 2010 budget. June, you started having meetings. And then 
you saw the Dodd-Frank bill starting to get rolled out in 
committee--I'm paraphrasing that a little bit--saw the Dodd-
Frank bill being rolled out in committee. You had your fiscal 
year 2011 request in at the time and then expanded that request 
based on the Dodd-Frank legislation which was going to pass a 
month later.
    Ms. Schapiro. Yes.
    Mr. Denham. And based on what you thought the Dodd-Frank 
bill that was going to get passed on July 21st, based on that 
bill, how many additional employees did you feel you were going 
to need on top of the 550 that you already had budgeted?
    Ms. Schapiro. We had originally said that we would need for 
Dodd-Frank implementation over fiscal year 2011 and fiscal year 
2012 800 additional positions.
    Mr. Denham. That's 800 on top of the 550?
    Ms. Schapiro. Yes.
    Mr. Denham. On what date was the lease signed?
    Ms. Schapiro. July 28th, I believe.
    Mr. Denham. So you had your initial meeting in June. How 
many meetings did you have between that initial meeting and 
when the lease was signed on July 28th? How many meetings did 
you have in there with staff on the staffing requirements as 
well as the lease space needed for those staff?
    Ms. Schapiro. We had, I believe, several meetings before 
the June meeting. The June meeting was the one where we had the 
detailed discussion about the different options that we have. 
We were looking at 300,000 square feet at that time to 
accommodate what we thought under our budget projections would 
be about 1,000 in new staff over the next 2 years or so, 
between 1,000 and 1,100.
    And then July was when the staff came to me. The executive 
director came to me with an emergency request to go forward 
with Constitution Center without walking me through how the 
numbers had grown and how they had in fact, according to the 
inspector general's report, and I have no reason to doubt it, 
been inflated rather dramatically between June and July.
    Mr. Denham. So of the 550 new employees you thought you 
were going to have, 380 would be in DC, which you found out 
after the fact you have existing space. At the time, you didn't 
think you had it, so you had your staff go out and look for 
300,000 square feet for those 380 employees?
    Ms. Schapiro. No, Mr. Chairman. With--550 employees were 
under the fiscal year 2010 appropriation.
    Mr. Denham. Uh-huh.
    Ms. Schapiro. The additional staff that we projected that 
we needed--we projected that we needed--were between 1,000 and 
1,100, were based on the fiscal year 2011 request and 2012 to 
continue to bolster our core mission responsibilities, as well 
as to fulfill our Dodd-Frank implementation requirements, 
operationalization requirements.
    Mr. Denham. That was the additional 800 people that were 
needed?
    Ms. Schapiro. That's right.
    Mr. Denham. You had said initially 550 were needed, before 
Dodd-Frank.
    Ms. Schapiro. Yes, 550.
    Mr. Denham. And at the time you didn't know that you had 
vacant space at your current facility. So I am assuming that--
--
    Ms. Schapiro. I was told that in order to accommodate any 
growth for fiscal year 2011 and 2012 that we would need to take 
additional space, that there was no more space available in 
Station Place.
    Mr. Denham. So when did your staff start looking for space?
    Ms. Schapiro. In the spring of 2010.
    Mr. Denham. And when did you start having meetings with 
your staff on their discovery of the space?
    Ms. Schapiro. In the spring of 2010, with the pivotal 
meeting being the one in June.
    Mr. Denham. And was Constitution Center one of those spaces 
they had come back with in June?
    Ms. Schapiro. It was one of several places. I believe there 
were four or so options at that time.
    Mr. Denham. Several options at 300,000 square feet, but as 
you go to 900,000 square feet you become limited.
    Ms. Schapiro. I think that's right.
    And the other options, I would say, were, as the inspector 
general determined, within walking distance and still available 
to the Agency at the point of the July decision.
    Mr. Denham. OK. Just one final question that plays back 
into this timeline issue. You were also a commissioner from 
1988 to 1994 when the SEC originally got its leasing authority?
    Ms. Schapiro. That's correct.
    Mr. Denham. And during that time when you were 
commissioner, how often did you see sole-source contracts?
    Ms. Schapiro. I don't recall having any involvement at all 
in any of the leasing obligations of the Agency. I was not the 
chairman. So the chairman would have had the operational 
responsibility. I can't say I didn't have any involvement at 
all, but I don't recall any involvement whatsoever in the 
leasing process.
    Mr. Denham. And between June and July 28th when the lease 
was finalized, at what point in there did you discuss sole-
source contracts with your staff?
    Ms. Schapiro. I recall the staff telling me that, because 
we would qualify for using the provisions that allow for going 
sole source or limited competition or whatever they described 
it as, because of an urgent and justifiable need for the space.
    Mr. Denham. Thank you.
    I will now recognize Ranking Member Norton for 5 minutes.
    Ms. Norton. Thank you very much, Mr. Chairman.
    Mr. Chairman, the problems with the SEC leasing, both in 
this lease and in prior leases, has been made clear, but I am 
concerned that there may be smoking guns with some other 
agencies. There are some agencies that are experienced and that 
should have leasing authority, like the DOD and the Veterans 
Administration. They've long had it, probably as long as the 
GSA.
    Mr. Chairman, I have asked for a list of agencies that have 
leasing authority. I recognize in our BRAC bill--a bill that, 
as you know, I do support--that we would pull back all these 
leases, but we don't have any idea whether there is a smoking 
gun out there. And I'm not sure about getting bills through the 
House and the Senate.
    I do believe bill--based on this experience as a kind of 
optic lesson that a bill to pull back authority from agencies 
like the SEC could quickly get through the House and the 
Senate, and I would hope that you and I could work together on 
such a bill.
    Could I ask you how much space is there in the building 
that would still be charged to the SEC?
    Ms. Schapiro. Currently--as you know, it was originally 
900,000 square feet. Two-thirds of that have been taken by two 
other Federal agencies, the OCC and FHFA; and they are 
committed for that space. So the SEC has no responsibility for 
that space.
    There is 300,000 square feet left, and we are working very 
closely with GSA. They have expressed real interest in taking 
that space over from us. We have provided them with a draft 
lease. We are working to definitize that so that the transfer 
or assignment of the surplusing to GSA can be made as quickly 
as possible. And they have tenants who have indicated interest 
in that space for whom that space aligns well with their needs. 
So we are we are working very hard to make sure----
    Ms. Norton. Would that be the full space?
    Ms. Schapiro. That would be the remainder of the space for 
which the SEC is currently obligated, 300,000 square feet or 
so.
    Ms. Norton. Has SEC been charged for any of the space now 
under its lease?
    Ms. Schapiro. Congresswoman, we have not paid any rent on 
that space and even the space that's remaining for which we may 
be obligated, the 300,000 square feet, we don't believe any 
rent payments would be due until the first quarter of 2013. 
There are costs that have been incurred in the process of 
taking this space for, I'm told, circuitry, telecom, some 
architectural and construction consulting, that totals about 
$415,000. But, other than that, there have been no rent 
payments incurred, nor do we believe there would be any until--
--
    Ms. Norton. Those are the only outlays by----
    Ms. Schapiro. I'm sorry?
    Ms. Norton. That's the only outlay of money by the SEC?
    Ms. Schapiro. Yes, my understanding is $415,000.
    There is another $127,000 for IT equipment, but that can be 
redeployed elsewhere in the Agency.
    Ms. Norton. Now, with GSA taking over the leasing, assuming 
that MOU goes through and is approved by all concerned, who 
would pay for GSA to do the work for SEC?
    Ms. Schapiro. My understanding is that GSA charges a fee to 
the agencies for whom--for which it administers leasing 
services, and so the SEC would pay that and need to account for 
it obviously in its budget. My understanding is it is typically 
7 percent of the annual lease payments.
    Ms. Norton. Uh-huh. The so-called corrective action plan 
recommends a senior review of all the leasing deals. Would that 
be carried out by the GSA now?
    Ms. Schapiro. Yes, we submitted a corrective action plan to 
address the IG's recommendations, and we are moving ahead on 
that. But on a parallel track, obviously, we are trying to 
negotiate this agreement with the GSA to which, as I say, they 
are quite amenable to taking over all of this responsibility 
for the SEC.
    We'll have to amend our corrective action plan to account 
for GSA taking over responsibility for a wide range of 
activities under the MOU, beginning with helping decide the 
requirements for the Agency through running competition, doing 
surveys, reviewing offers, negotiating offers, establishing the 
competitive range, arranging for the move, any tenant 
improvements that are necessary, and in fact actually awarding 
the lease under GSA's----
    Ms. Norton. My time has expired, Mr. Chairman.
    Could I ask if legal counsel--if either Ms. Schapiro or Mr. 
Kotz can tell us whether legal counsel was ever consulted at 
any time during this SEC lease process or, for that matter, 
were they consulted generally?
    Mr. Kotz. Yes, actually, they were. The folks from the 
Office of General Counsel were consulted and were involved in 
the process.
    Ms. Norton. Well, how do you account--is it that they, too, 
have no expertise in real estate law? Did they look at the 
regulations, for example, on how much space a Federal employee 
is allowed to occupy? Did they look at what the law says about 
competitive bidding? What kind of counsel--are you saying 
counsel approved what the Agency did?
    Mr. Kotz. Yes, yes, general counsel's office was involved. 
Reviewed the justification and approval, did not have any 
specific issues. They did make----
    Ms. Norton. Did you question counsel about its----
    Mr. Kotz. Yes.
    Ms. Norton. And also about its malpractice insurance?
    Mr. Kotz. We definitely have concerns about how folks in 
the general counsel's office dealt with this situation. Without 
a doubt, it is set forth at some detail in the report. We have 
concerns about their interpretation of the Antideficiency Act, 
concerns about their interpretation of OMB notification, 
concerns that in fact the Office of General Counsel were 
involved in the editing and revising of the report subsequent 
to when it was signed. In other words, it was at the end dated 
for August 2nd, but for that month between the beginning of 
August and the beginning of September the Office of General 
Counsel was editing and revising the report.
    Ms. Norton. I think it puts the Agency in a general 
position when its own counsel can approve details of the kind 
that any real estate agent could have read the rules and 
regulations and have advised the Agency that you're going to 
have a lot of problems with this lease.
    Mr. Chairman, I must say if the testimony is that even 
legal counsel not only approved but was involved in this 
matter, that raises very serious concerns about--I say as a 
member of the DC bar--about whoever is--his confidence.
    But it does say to me that the notion of any agency, unless 
approved by this committee, having this responsibility should 
now be altogether clear. Because there is no check even in the 
Agency of the kind that I must tell you the run-of-the-mill 
lawyer in DC could, without ever having picked up anything but 
the regulations, could have spotted violations here. So it is 
very disconcerting.
    Mr. Denham. Just to clarify, Mr. Kotz, are you saying that 
legal counsel was not only aware of the sole-source contracts 
but also aware that there were two different contracts out 
there that had been altered?
    Mr. Kotz. We didn't determine that legal counsel were aware 
of the altering. They were certainly aware of the justification 
and approval, the language in the justification approval, 
edited it, and eventually consented to it going forward. But we 
were not aware specifically that they knew about the fact that 
it was backdated.
    I would say that one of the benefits of Chairman Schapiro's 
approach to hand everything over to GSA is--I would assume GSA 
has its own lawyers, and so GSA lawyers would be involved in a 
continuing process of advising on leases, rather than the same 
lawyers who were involved in this case.
    Mr. Denham. Sure. We're trying to both understand not only 
the future corrective action but what happened here that went 
so wrong. And if they didn't look at both contracts, which 
contract did they look at?
    Mr. Kotz. What happened was there was a version being sent 
around that was circulated for comment. None of the Office of 
General Counsel folks actually had to sign the document. So the 
signature page was sort of dealt which separately. They were 
dealing with the actual document, the language in the document.
    Mr. Denham. Is that customary, that you have legal counsel 
look at a partial document?
    Mr. Kotz. Well, I don't know that legal counsel at that 
point was aware the document had already been signed. I think 
they assumed that the document had not been officially formally 
signed.
    Now they should have looked at it certainly afterwards to 
see that the signature date was August 2nd, and they certainly 
knew that they were revising it, making comments on it way past 
August 2nd. So in that case they certainly should have been 
aware.
    Mr. Denham. So did legal counsel have final sign-off on the 
contract?
    Mr. Kotz. Yes.
    Mr. Denham. And they had an opportunity to look at the 
contract earlier but not a complete document?
    Mr. Kotz. What we are talking about here is the 
justification and approval, just to be clear. The letter 
contracts they also were involved in, but the document that was 
backdated was the justification and approval. But, yes, they 
had legal clearance over that document as well as the actual 
contract.
    Mr. Denham. So are you saying then they saw the sole-source 
contract--which the sole-source contract is only determined by 
the date of the signature page. They saw the sole-source 
contract without the signature page? How is it a sole-source 
contract if it doesn't have a signature page? That's my 
question.
    Mr. Kotz. Right. It was a sole-source justification. It had 
a signature page. The document was sent around to various 
people through email requesting comments on the actual 
document. But the email version that was sent around didn't 
have the signatures on it. They were revising the substance of 
the document. But they should have seen at the end that, once 
the document was finalized, it was dated a month before they 
had made comments.
    Mr. Denham. In a sole-source contract, the date is probably 
the most critical part, is it not?
    Mr. Kotz. It is certainly a very important part, yes.
    Mr. Denham. OK. So they did have an opportunity to look at 
that contract, but the date was not on there.
    Mr. Kotz. Right.
    Mr. Denham. So you can't justify a sole-source contract 
without that date.
    Mr. Kotz. Right.
    Ms. Norton. Mr. Chairman, I would say the justification--
the date is very troubling, particularly for counsel when you 
understand his responsibility. But even more troubling are 
explicit Government regulations on when a sole-source contract 
can be entered into.
    I've been on this committee ever since I've been in 
Congress. I have never seen a sole-source contract. When people 
come to us for sole source, the only thing I have seen possible 
to do is, if someone wants to do a win-win, we build something 
for the Federal Government; in return, the Federal Government 
gets something.
    You can call that a sole source if you want to, but there 
is not even discussion when there is a sole-source contract. So 
you would have to have such justification for it. And if the 
justification was we can't find any more space, that would not 
be enough justification. That would not--we can't find any 
other space, that would--then they would say, you better look 
in the region. They would say, you better look outside of the 
Washington. But you cannot tell us there is not one other 
building. You better divide them up. Because the Government 
does not do sole-source contracts.
    Yes, the backdating, the date raises very serious problems. 
My problems start with the moment you know you are doing a 
lease, you get out your little book; and the little book tells 
you what the rules of the Federal Government are in doing a 
lease. Once you get to sole source, then of course you have got 
the biggest, reddest flag of all.
    So while I see that there were multiple people involved, I 
am more shocked that counsel would have had anything to do with 
this matter; and it only tells me that there's nobody in the 
Agency--in an agency which does not have this as its mission to 
check, to see whether or not the mission is being carried out 
according to law.
    Ms. Schapiro, did you have something to say?
    Mr. Denham. Before you respond, we're going to move to Mr. 
Hanna and come back.
    Mr. Hanna.
    Mr. Hanna. Chairman Schapiro, I have a question that--the 
space is rented out, is about to be rented out fully. The 10-
year period, $500 million--are the current tenants and the 
anticipated tenant, how much of that will they cover? And, 
also, what do you expect your organization and the American 
public to have to pay into this that is associated with this 
mistake?
    Ms. Schapiro. Thank you, Congressman.
    My understanding is that the two agencies that have taken 
the two-thirds of space, that has already been released by the 
SEC, and the SEC is now held harmless for that. We received a 
release from the landlord for that space. They are paying, 
actually, I think a little bit more in rent than the SEC was 
going to pay. So that is covered for two-thirds of the space.
    The final one-third of the space is that which we're 
working with GSA to find other tenants for; and my 
understanding is that GSA is optimistic that we will be able to 
do that before rent is due on that space, which is not until 
the first quarter of 2013. So we're not across the finish line 
on this yet, but we are working extremely hard and extremely 
well with GSA and their tremendous expertise and capability to 
get this space entirely into the hands of tenants who can use 
it and use it in the timeframe in which it is available.
    Mr. Hanna. So do you have a number of dollars in your mind?
    Ms. Schapiro. I don't believe--and, of course, these things 
play out over time. I don't believe the SEC will ultimately be 
responsible for any costs, other than those that have already--
the $415,000 I referenced earlier in response to Congresswoman 
Norton, other than that.
    As I said, we were released on the two-thirds space that 
have already been relet to other tenants and at a higher rate 
and for a longer term. So we believe, again, that we will not 
be responsible for additional costs. But I certainly could not 
guarantee that. It will be my goal to achieve that as best we 
can, but we'll have to see over time. But our best guess is we 
should be OK on that.
    Mr. Hanna. Thank you. I yield back.
    Mr. Denham. Thank you.
    Chairman Schapiro, the 900,000 square feet that was under 
lease, you have that broken up how now of different tenants 
that are willing to take that space?
    Ms. Schapiro. Two-thirds--and I can get for you the exact 
amount for each of those two agencies--went to the Office of 
the Comptroller of the Currency and the Federal Housing Finance 
Agency. They are two self-funded agencies. And they took two-
thirds of that space directly as a result of the SEC having the 
ability to assign or sublet that space. We gave a release to 
the landlord, and the landlord in turn released us so that he 
could deal directly with those two agencies on that space. 
Those terms of those leases are, I believe, 15 years and up to 
25 years--15 for both, I'm sorry, for both of those.
    Mr. Denham. And both of those two agencies have their own 
leasing authority?
    Ms. Schapiro. Yes.
    Mr. Denham. Were those two agencies in competition with the 
SEC in the initial bid?
    Ms. Schapiro. No, I don't believe so.
    Mr. Denham. What other Government agencies were? You talked 
about this increased competition that forced you to go out 
and----
    Ms. Schapiro. I believe NASA was one, Mr. Chairman. I'm not 
sure about the other. Again, I would be more than happy to get 
that information.
    Mr. Denham. How many, approximately, different agencies 
were in competition for such a large space?
    Ms. Schapiro. Two, I believe. Again, I would be happy to 
confirm that for you.
    Mr. Denham. So these two, the Comptroller and the Federal 
Finance Agency, took 600,000 square feet, approximately?
    Ms. Schapiro. Yes.
    Mr. Denham. The other 300,000 square feet the SEC is still 
on the hook for, but you----
    Ms. Schapiro. We are working with the GSA in order to 
surplus that or assign that space to them for them to then use 
as part of their portfolio. And we are told that they have 
potential tenants who have expressed an interest in the space 
and for whom the timing of that space becoming available works.
    Mr. Denham. Another or several Federal agencies that would 
be going through GSA.
    Ms. Schapiro. Yes, and I don't know who those are.
    Mr. Chairman, I want to make sure I was clear on the budget 
questions you asked me at the beginning. For our request, our 
authorization request for fiscal year 2011 and 2012 would have 
supported 380 additional positions in fiscal year 2011 and 800 
positions in fiscal year 2012. And I'm not sure if I got you 
there the way I went through it before, but I wanted to make 
sure that was clear.
    After we were on the continuing resolution or it became 
clear we would be on a continuing resolution, in an anomaly 
request that we filed with OMB at the very end of September of 
last year we reduced--we looked at 523 positions for fiscal 
year 2011 and reduced the fiscal year 2012 number to 525. The 
reason the fiscal year 2011 number went up from 380 to 523 was 
that, in the interim, the House and Senate Appropriations 
Committees had in fact approved a higher appropriation for the 
SEC for fiscal year 2011 that would have supported that 523 
positions--I'm sorry. It was the OMB request in September.
    The reason I think it is important is that my assumption 
was that the executive director's office was basing leasing 
needs and decisions upon those numbers which total around 1,000 
additional positions, not the 2,500 or more that they 
ultimately used to justify the larger space.
    Mr. Denham. The executive director Diego Ruiz.
    Ms. Schapiro. Yes.
    Mr. Denham. Who is no longer with the Agency?
    Ms. Schapiro. He is on terminal leave, but he has been gone 
from the Agency for the last couple of months.
    Mr. Denham. I want to get back to the timeline issue, 
because I think that it's really important, especially as we're 
assessing accountability in this matter. You went--your thought 
process was April-May expanding under just normal circumstances 
by 550 new employees.
    Ms. Schapiro. Under our 2010 appropriation.
    Mr. Denham. And you felt you needed 300,000 square feet for 
a percentage of those employees because a percentage of them 
was going to go out to the regions?
    Ms. Schapiro. A large percentage was going to go out to the 
region, but to be clear, the 300,000 was not just predicated on 
needing those additional people. That would not by any means 
justify an additional 300,000 square feet. The 300,000 square 
feet was predicated, or should have been predicated, on an 
expectation of achieving the additional employees that were 
sought under the FY 2011 and 2012 request, the 1,000 or so 
additional employees.
    Mr. Denham. Something grossly went wrong in June. In June 
you had your meeting to discuss the square footage for those 
new employees under the 2010 budget, and without having a 2011 
budget, just a request, because the 2011 budget didn't get 
addressed until after the election; the 2012 budget, which we 
had CRs on, went beyond that; and Dodd-Frank didn't pass until 
July 21st. So at some point without a budget and without a 
Dodd-Frank bill, we were out there negotiating a lease on 
behalf of the American taxpayers for 900,000 square feet.
    I'm trying to understand the timeline. How did things go so 
wrong in a 1-month period when Dodd-Frank hadn't even passed? I 
would understand if Dodd-Frank had passed and you said, ``Oh, 
no, we're going to need a lot of new employees because the 
President has signed this new bill into place, and we have a 
new budget to pay for that, I've got to go out there and ramp 
up.'' But this is prior to legislation, and this is prior to a 
budget. I don't understand how in 1 month we could not only go 
out and secure the space, but do it over a weekend and do a 
sole-source contract.
    Ms. Schapiro. Mr. Chairman, I don't disagree that this was 
done in an anticipatory way that--and should not have been done 
that way. I think part of what was going on is that we did try 
to protect ourselves to some extent with the right to assign or 
sublet the space that was built in.
    I also--I also believe that we were----
    Mr. Denham. Was there a cancellation clause?
    Ms. Schapiro. No, there was not a cancellation clause, 
just----
    Mr. Denham. Because that's normally what we put into a 
contract to protect the taxpayers.
    Ms. Schapiro. And I think it would be a great idea, 
frankly. I'm not sure that it's possible. I've been told that 
such clauses are incompatible with a long-term lease such as 
this, and that GSA, in fact, doesn't typically include them is 
what I understand from GSA. But I will agree with you that it 
would have been a very good thing to have in this lease; that 
if there were not an appropriation, the SEC would not be 
obligated under the contract.
    Mr. Denham. Mr. Kotz, is it customary to have a--such a 
clause?
    Mr. Kotz. Yeah, I don't know how customary it is. I mean, I 
think what happened in this instance was they didn't 
specifically even request the cancellation clause. We were told 
that they didn't because the landlord would never agree to it. 
We also asked that they would have a clause in there that would 
have the payment dependent upon appropriations. So if the 
appropriation came through, they would have to pay. If the 
appropriation didn't come through, they wouldn't have to pay. 
But they never even raised that with the landlord. Part of the 
problem was they--it wasn't a very serious negotiation. They 
felt that they had no leverage because they wanted that space 
so much.
    So I don't know that I can say that it's customary, but I 
do think that the process they went forward in that case was 
such that they didn't really negotiate hard on behalf of the 
SEC. They allowed whatever terms the landlord could dictate, 
and the landlord certainly would have been happy not to agree 
to a cancellation charge, cancellation clause because that 
wouldn't have been in his interest.
    Ms. Schapiro. Mr. Chairman, just--I'm sorry.
    Mr. Denham. My time has expired.
    Mr. Fleischmann.
    Mr. Fleischmann. Thank you, Mr. Chairman. I've got a few 
questions. This is very concerning to me, of course. A few 
issues.
    It appears to me that the Agency is attempting to mitigate 
the damages after the fact. Is the same Office of General 
Counsel that was allegedly responsible for reviewing these 
documents overseeing this mitigation process, Mr. Kotz?
    Mr. Kotz. I believe the--I don't know how involved the 
Office of General Counsel is in the mitigation process, but I--
it's the same. There is only one Office of General Counsel. I 
don't know whether it's the same individual lawyers or not, but 
it's the same office.
    Mr. Fleischmann. OK.
    Ms. Schapiro. Congressman, if I could just add to that. If 
he--in terms of the mitigation process, you mean releasing the 
space to GSA and working on the memorandum of understanding to 
offload all of our leasing responsibilities to them. I 
personally have met with the GSA Administrator. There are staff 
from the Office of the General Counsel, but also from our new 
Chief Operating Officer's office deeply involved in this, and I 
am personally involved in it. So we are very--and obviously GSA 
is deeply committed to the process as well, so there are a 
number of people who are involved in pushing these initiatives 
forward.
    Mr. Fleischmann. Then is it fair, Chairman, to assume then 
that this lease has a sublease provision so that you can, in 
fact, go ahead and sublease legally binding to other Government 
agencies?
    Ms. Schapiro. Yes. My understanding is that we have the 
right to assign or to sublease the space, and, in fact, two-
thirds of it have, in fact, been leased to other agencies.
    Mr. Fleischmann. OK. In terms of the contract, we talked--
chairman talked about a cancellation clause. Was there any form 
of a liquidated damage clause? And what I mean by a liquidated 
damage clause is a prearranged penalty in the contract.
    Ms. Schapiro. I understand that there wasn't.
    Mr. Fleischmann. OK. Going forward, so that this problem 
hopefully would never occur again, what--Mr. Kotz, what has 
been put in place to ensure that the next time the Agency has a 
contract, a lease or something, that counsel is sat down at the 
table without just perhaps just sending it out across emails, 
to sit down and make sure that counsel actually sits down and 
approves and advises the Agency? Has that been put in place 
now?
    Mr. Kotz. Well, I mean, I believe with respect to leasing, 
the plan is to have all the leasing functions go to GSA. So 
with respect to leasing, the Office of General Counsel wouldn't 
be involved anymore, it would be GSA and their Office of 
General Counsel.
    Mr. Fleischmann. OK. What, then, specifically safeguards 
have you sought to put in place to avoid a situation like this 
happening again?
    Ms. Schapiro. If I may, there are a number of things we 
have done immediately in response. One is to provide the GSA 
with a memorandum of understanding that would shift 
responsibility for all aspects, from requirements to awarding 
of leases, to the GSA on behalf of the SEC. We will not enter 
into any lease without the GSA having taken care of the entire 
process for us.
    I have revoked the delegations of authority that existed to 
the Executive Director and from the Executive Director to other 
employees for the ability to enter into any leases, so those 
would not be possible to go forward. We have engaged Booz Allen 
and Hamilton to come in and do a complete assessment of our 
entire Office of Administrative Services, including its 
structure, its decisionmaking processes, its quality controls, 
the level of staffing, the skills of the staff, what are our 
cost-reduction opportunities, what are our process-improvement 
opportunities, are we in compliance with the regulations, and 
that work is ongoing as well.
    As I mentioned earlier, the disciplinary process with 
respect to the specific employees who are named by the IG is 
well under way, and we are creating at our chief operating 
officer level an executive steering committee on facilities 
management oversight, so the decisionmaking cannot be made by 
one person.
    But, again, most importantly--and we're implementing new 
policies and procedures around leasing, but most importantly, 
authority has been revoked from staff to enter into any real 
property leases.
    Mr. Fleischmann. Thank you, Mr. Chairman. I yield back.
    Mr. Denham. Thank you, and I would also announce that 
Ranking Member Norton had to go to the floor. We're going to 
continue on, going back and forth through a couple of more 
rounds of questioning.
    I wanted to get back to the issue of typical clauses, 
because it's my understanding that a cancellation clause and a 
clause that's subject to appropriation are both normal and 
customary, both from GSA as well as other agencies. It's also 
my understanding that your staff did approach the landlord or 
the building owner with these two requests, and he denied them. 
Are you aware of that?
    Ms. Schapiro. I am not aware of that. And, Mr. Chairman, 
you are far more expert in this than I am, so if those clauses 
are, in fact, typical, I would defer to your judgment on that.
    My understanding had been that they weren't typical in 
long-term real property leases, but they ought to be. It seems 
like a reasonable way to protect the taxpayer, and, again, it's 
another reason I think why the SEC and the taxpayer will be 
well served by the GSA having this responsibility for this 
Agency and not keeping it in house.
    Mr. Denham. And you've recognized the fact that, as 
chairman, you're going to oversee the core function of the SEC, 
and that leasing authority should be something that goes back 
to the GSA. My concern is you may not always be chairman. 
future chairmen, future Presidents who appoint future chairmen, 
you may have a chairman that wants to have the leasing 
authority back again.
    In our bill, the Civilian Realignment Properties Act, we 
actually pull the leasing authority not only from the SEC, but 
several other agencies. For the future, do you foresee the SEC 
ever needing leasing authority back again beyond your 
chairmanship?
    Ms. Schapiro. Mr. Chairman, from my perspective, I don't 
see a reason for the SEC to have that authority. There may be 
reasons for other agencies that I wouldn't begin to be able to 
speak to, but I don't see the need for the SEC. And frankly, I 
do see a benefit for the GSA to have a larger, broader, more 
flexible portfolio that they're able to obtain by having more 
agencies underneath their responsibility, and it gives them the 
flexibility with the space that they have to allocate it among 
multiple agencies, which I think perhaps provides us, them 
also, with more market power when they're negotiating leases. 
So from my perspective, and from the perspective of the SEC, at 
this time, as I'm chairing it, I don't see the need for the SEC 
to maintain this authority.
    Mr. Denham. Thank you.
    We will be requesting further information on the lease 
itself. We will be working with GSA on that as well. We want to 
make sure that the taxpayer, indeed, does not have to pay for 
the cost of this lease, but I also want to follow up on the 
disciplinary action.
    Diego Ruiz, you said, the Executive Director, is on 
terminal leave?
    Ms. Schapiro. Yes, that's right.
    Mr. Denham. How do you define ``terminal leave''?
    Ms. Schapiro. He resigned from the Agency and, I believe, 
is using up accrued annual leave, as is permitted under the 
Government rules, but he is not in the office. He's not in our 
facility. He has no responsibility. In fact, I immediately 
reassigned all of his direct reports to the new Chief Operating 
Officer, and we're in the process of eliminating the Executive 
Director position and combining it all under the Chief 
Operating Officer.
    Mr. Denham. And your Chief of Staff, I assume, sat in on a 
number of these meetings. Is there any responsibility of your 
Chief of Staff on this matter?
    Ms. Schapiro. No, I don't believe so. I mean, my Chief of 
Staff and Deputy Chief of Staff both were in some of the 
meetings. They were not provided with more accurate information 
than I was, unfortunately, or they would have noticed, I think, 
what was going on, but I don't believe they bear any 
responsibility.
    Mr. Denham. And both your Chief of Staff and your Deputy 
Chief of Staff are both still with you?
    Ms. Schapiro. The Deputy Chief of Staff left a month or so 
ago, and the Chief of Staff is still there. And let me just 
add, she left completely unrelated to this issue or any other 
issue.
    Mr. Denham. And the five signers on the document 
themselves?
    Ms. Schapiro. I'm--I don't know off the top of my head who 
the signers were. I mean, I focused more on the employees in 
terms of those identified by the inspector general in his 
report to be considered for disciplinary action, and to the 
extent, as you and I have discussed, those people are still 
there, the review is ongoing to follow up on the IG's report. 
And in the meantime the three critical people have been 
reassigned and are no longer responsible for any leasing 
activity, but also are not in positions to commit or bind the 
Agency in any way on any contract.
    Mr. Denham. And who are the three individuals?
    Ms. Schapiro. Sharon Sheehan, who is the Associate 
Executive Director and the head of the Office of Administrative 
Services; Mr. Branch, who is the Support Services Manager; and 
Miss Sudhoff, who was the competition specialist. I believe 
those were the three who were particularly highlighted by the 
IG.
    Mr. Denham. And, Mr. Kotz, you identified these three 
people? Were these the only three people that you identified?
    Mr. Kotz. Those are the three people we specifically 
identified for disciplinary action in the report, yes.
    Ms. Schapiro. I believe, Mr. Chairman, as you and I 
discussed briefly yesterday, we will not turn a blind eye. If 
there are other issues with respect to other employee conduct 
that comes up in the course of this review, obviously we'll 
take appropriate action.
    Mr. Denham. Mr. Ruiz, was he identified as well for 
disciplinary action?
    Mr. Kotz. By that point he had resigned from the Agency.
    Mr. Denham. He had resigned, OK.
    And how about Wendy Liebl? Liebl?
    Mr. Kotz. Right. She was gone also by that point.
    Mr. Denham. Would you have named those two?
    Mr. Kotz. Yes.
    Mr. Denham. What about Kayla Gillian?
    Mr. Kotz. No, we wouldn't have named her.
    Mr. Denham. OK. So just those five?
    Mr. Kotz. Right.
    Mr. Denham. And of those five, how many more signers on the 
contract?
    Mr. Kotz. I believe the three people signed the contract: 
Sheehan, Sudhoff, and Liebl.
    Mr. Denham. And what was that?
    Ms. Schapiro. Branch and Liebl as well.
    Mr. Kotz. Yeah, Branch and Liebl. So those were----
    Mr. Denham. So everybody you've named all signed the 
contract?
    Mr. Kotz. Yes. It was--just to be clear, it was a 
justification and approval, not specifically a contract per se. 
But, yes, it was the document that demonstrated the sole-source 
nature.
    Mr. Denham. Do we know when any of these or when each of 
these had actually signed the contract?
    Mr. Kotz. Yes. The justification and approval was--they 
were all dated August 2nd. There were several that were signed 
early in August. Then there was that one that Linda Sudhoff 
signed on August 31st, although initially it was dated August 
27th, and then the 7 was whited out so made to look like it was 
August 2nd, but it was actually signed on August 31st.
    Mr. Denham. Thank you.
    Mr. Hanna?
    Mr. Hanna. What would your--either person--what would your 
expectation be in terms of the nature of disciplinary action, 
and in your own words, what would you describe their 
malfeasance or misconduct to be?
    Ms. Schapiro. Congressman, I think it's really important 
that we let the disciplinary process go through without 
commenting or prejudging the information. And as I said, I'm 
very committed to us getting this completed very quickly so 
that the Agency can move on with their--with the transition to 
the GSA and the reorganization that will be necessary in the 
Office of Administrative Services. And I just--I guess I hate 
to prejudge any individual's conduct.
    Mr. Hanna. Thank you. I yield back.
    Mr. Denham. Thank you.
    I'm having a hard time understanding who else should be 
held accountable on this issue, and I'm trying to understand 
your thought process on this. You went from 550 people, of 
which you expected a large percentage of those to be in the 
regional areas. It was also--in your statement you said you 
also wanted them, the ones that were going to be located in DC, 
to be within walking distance of the current SEC building. Now, 
this 900,000 square feet is neither in the region, nor is it 
within walking distance.
    How do we get to the point where we're going out to lease 
this building; and, secondly, if you're in charge, and it was 
your wish to have regional or within walking distance, how did 
we end up with a building that was neither of those and went 
from 300,000 square feet to 900,000 square feet? I mean, 
ultimately if you're not the person to be held accountable, and 
neither is your Chief of Staff, you were both in meetings and 
both aware of these changes, and if your directive was 
something else than what actually happened, I'm having a hard 
time understanding----
    Ms. Schapiro. Well, Mr. Chairman, I am accountable, 
clearly. I will say that I was not fully aware of--I was not 
aware of these changes. I was not aware and nor was I walked 
through that we'd gone from 300,000 to 900,000 square feet. 
I've never even seen the Constitution Center space. 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.
    I assumed that the projected space needs--and I didn't 
question the underlying assumptions--I assumed that they would 
be routine assumptions about the number of square feet per 
employee that are used throughout the Government and so forth. 
I didn't question those underlying assumptions, but I assumed 
that they would be in line with both our budget assumptions, 
which had us somewhere between 1,000 and 1,100 people over FY 
2011 and FY 2012, and that the work that was being done was 
consistent with that. But I--at the end of the day, the staff 
went forward and signed a contract for far more space than was 
appropriate for the Agency in a location that was not ideal for 
the Agency, and it's why we've worked so hard now very quickly, 
frankly, after this was done to undo it.
    Mr. Denham. As chair of the SEC, what is your ability to 
appropriate dollars?
    Ms. Schapiro. I have no ability to appropriate dollars. 
Congress obviously appropriates the funds for us in accordance 
with the budget that we provide to Congress, so that even when 
we seek to move money----
    Mr. Denham. So then what is your spending authority?
    Ms. Schapiro. It is as it is outlined in the budget. So if 
I could give you an example, under Dodd-Frank we're required to 
create five new offices within the SEC. Four of those require 
change in reporting structure, and in order for us to create 
those four offices, even within the existing budget of the 
Agency, we have to go to the appropriators with a reprogramming 
request to ask for money to be reallocated to create those 
offices that Congress told us to create. So I'm guided by the 
budget.
    Mr. Denham. So your spending authority ends with the 
appropriation of Congress, based on what the current fiscal 
year budget is?
    Ms. Schapiro. That's right.
    Mr. Denham. So you went from a 2010 budget, you began 
negotiating the lease for the 2011 budget, which hadn't been 
passed yet, and the 2012 budget, which we just passed earlier 
this year, and--I mean----
    Ms. Schapiro. Congressman----
    Mr. Denham. You can see that this doesn't make any sense. 
You committed the taxpayers to over half a billion dollars 
without Dodd-Frank passing, without the 2011 budget, without 
the 2012 budget. So if you're not held accountable to any 
disciplinary action, nor is your Chief of Staff, I'm having a 
hard time understanding why the taxpayers are on the hook for 
half a billion dollars under this scenario when the spending 
authority was not granted.
    Do you have some other type of spending authority outside 
of the budgetary process?
    Ms. Schapiro. No.
    Mr. Denham. Does your staff have any other type of spending 
authority?
    Ms. Schapiro. No. The cost for the leases were included in 
our budgets for 2011, $7.2 million, and for 2012 $12.7 million 
for the rental payments.
    Mr. Denham. How big is your current--was your 2010 budget?
    Ms. Schapiro. I believe it was $1.1 billion.
    Mr. Denham. $1.1 billion. And under that $1.1 billion, the 
lease payment on an annual basis would have been----
    Ms. Schapiro. Well, in 2011--no rent, in fact, was due 
until the first quarter of 2012, but there was an opportunity 
because we have no year money to prepay, so I believe the 
budgeted amounts for 2011 was $7.2 million. Now, even though 
that space is gone and taken over by the other agencies, we're 
still budgeting for rental costs for the last 300,000 square 
feet, although, again, we hope that that space will be gone as 
well. We have not paid any rent to date.
    Mr. Denham. I'm getting to the point where I was with your 
CEO--COO last week. I just--I don't understand--I don't 
understand how you can obligate a future Congress on a large 
expenditure that was not passed. We haven't passed a budget in 
how many months now? How long has it been since we had a 
budget? Over 2 years.
    Ms. Schapiro. But I guess we--I mean, we have lots of space 
now around the country that we pay rent on every year, so we 
have multiyear leasing authority. We have the ability, 
obviously, to enter into long-term leases. That's generally the 
most cost-effective way for the Government and for the 
taxpayer, and although we don't--you're right, we don't have a 
budget all the time, we operate under continuing resolutions, 
we do include in our budgeting what our lease payments and 
lease obligations will be for the coming year. I'm not sure how 
else we can go forward and lease space for our employees.
    I will say that the question that was raised by the 
inspector general came up very briefly here about whether we 
properly exercised our independent, multiyear leasing authority 
and, by doing so, only obligate the current-year obligations is 
in any way a violation of the Antideficiency Act, and we have 
asked GAO for an opinion on that.
    Mr. Denham. I understand the need for multiyear lease. 
Obviously we want to utilize multiyear lease to save taxpayers 
money over a long-term period of time. But what you have done 
and what your department has done, what your Agency has done, 
is take a $1.1 billion budget and increase that by 20 percent 
on an annual basis based on a budget that was never passed. 
That's something that's very different. When you're basing your 
budget--when you're going to do a long-term lease, you base it 
on what your current budget analysis is. And I understand that 
there are several people on here that are facing disciplinary 
action that may have bumped up the numbers or guesstimated what 
the numbers would be, but the ultimate sign-off authority on 
such a huge number, increasing your budget by 20 percent, how 
could you have known, especially when Dodd-Frank hadn't even 
passed Congress yet?
    Ms. Schapiro. Well, Congressman, it wasn't presented that 
way. It was--the authority resided with the Executive Director 
to sign the lease and to enter into the lease negotiations, and 
it was presented in quite a different way, as a very good value 
for--per rentable square foot, as something we needed to do 
based on--it turned out not to have been based on reasonable 
budget assumptions, but it was represented to me as based on 
reasonable budget assumptions, and that we reserved the right 
to assign or sublet the space if it was not necessary for the 
SEC.
    I hear your frustration, and I understand it, and frankly I 
share it, and it's one reason I believe this Agency, which has 
not handled this authority particularly well over a very long 
period of time, shouldn't be in this business.
    Mr. Denham. I wanted to go back to something you said 
earlier. We were discussing the cancellation clause and 
appropriation clause. I've got before me a piece of the 
testimony that is included into Mr. Kotz's IG report.
    The question was, OK, and did you make a recommendation, 
that meeting with Chairman Schapiro, that the SEC enter into 
this lease for the Constitution Center for 900,000 square feet?
    Yes.
    And so Mary Schapiro verbally approved that recommendation 
at that meeting?
    Answer: Yes.
    OK. Did she ask any questions that you can recall or her 
staff ask any questions that you can recall?
    No, not at that--not that I can recall.
    You've seen the transcripts from----
    Ms. Schapiro. Yes. And, Congressman----
    Mr. Denham. This is from the Executive Director, who's been 
reassigned or who has resigned.
    Ms. Schapiro. Right.
    I understood that what we were doing in July was consistent 
with what we had talked about in June. That clearly wasn't the 
case. He did not walk me through how he got from 300,000 to 
900,000. We did not talk about this being $500 million over 10 
years. We talked about--it was presented to me as an immediate 
emergency and the criticality of going forward.
    Do I wish that I had stopped?
    Mr. Denham. Let me stop you there. It was an immediate 
emergency. Why was it an immediate emergency?
    Ms. Schapiro. Because, as he explained it to me, we had no 
other space options within DC, and if we were going to have any 
growth at all, and based upon our expectations at that time, we 
thought we would have growth, that we had to take this space, 
or we would not----
    Mr. Denham. Why did you expect it?
    Ms. Schapiro. Because Dodd-Frank had passed. We had had 
lots of favorable comments from the appropriators and others 
with respect to the continued growth in our budget, we had a 
lot of support for a reinvigorated and renewed SEC going 
forward, and our budget requests for FY 2011 and FY 2012 
suggested to us that we would need this space.
    I understand that we made a terrible mistake not waiting 
for an appropriation. I understand that. I think what was also 
weighing heavily on people's minds at that time was that when 
an appropriation does come, it takes a long time to get space 
and to build it out and to have it available to house people, 
and that the Agency had been criticized sometimes in the past 
for not hiring people fast enough and bringing them on board.
    Mr. Denham. This much criticism?
    Ms. Schapiro. No. This is more than I've certainly been 
used to, but I appreciate that it's constructive and important 
criticism for us to hear.
    Mr. Denham. We've seen the largest collapse of the real 
estate industry during this time period. No 2011 budget, no 
2012 budget. I'm having a hard time understanding why it was 
such an emergency to go out and lease space without a budget, 
going through the type of real estate collapse that we were 
seeing at the time. I just don't see the emergency.
    Ms. Schapiro. In retrospect, I don't either, and at the 
time I relied on the expertise of others that I perhaps should 
not have relied on.
    Mr. Denham. I assume that you were following Dodd-Frank 
very closely?
    Ms. Schapiro. Oh, yes. We have responsibility for over 100 
new rulemakings, 20 studies, and large new areas of 
responsibility for over-the-counter derivatives, hedge funds, 
credit-rating agencies, municipal advisors. We will have 
thousands of new regulatees and trillions of dollars of assets 
under management for which we will have responsibility.
    Mr. Denham. When did Dodd-Frank pass out of the House?
    Ms. Schapiro. July--oh, out of the House? It passed--it was 
signed by the President on July 21st. I'm going to guess a 
couple of weeks before that. I don't remember the exact date.
    Mr. Denham. Mr. Hanna?
    Mr. Hanna. Thank you, Chairman.
    With all due respect, ma'am, what do you regard your own 
culpability to be in this matter?
    Ms. Schapiro. I am ultimately responsible for the 
operations of the Agency, and the Agency made a terrible 
mistake here and entered into a lease that was not fully 
justified, on a sole-source basis that was not fully justified, 
and indeed was based upon inflated numbers. And I view myself 
as being ultimately responsible and also responsible for 
mitigating the consequences of that to the greatest extent 
possible. And those are the steps that we've taken are to 
mitigate it, to turn over this responsibility to the GSA, and 
to offload, as we have, two-thirds of that space and the last 
third in partnership with GSA as quickly as we can. My goal is 
to make sure the taxpayers are not on the hook for this.
    Mr. Hanna. Thank you for that. And I think you've taken 
considerable steps in that direction.
    Ms. Schapiro. Thank you.
    Mr. Hanna. Yes, ma'am.
    I yield back.
    Mr. Denham. Mr. Kotz, is there any further testimony that 
you would like to add to this as far as the IG?
    Mr. Kotz. The only thing I would mention is there's been a 
lot of discussion about justifications and approvals for no 
competition, and our office is planning to conduct an audit of 
additional justifications and approvals that the Agency has 
entered into where there's been no competition to determine 
that that was done appropriately, given the justifications that 
we found----
    Mr. Denham. Specifically within the SEC?
    Mr. Kotz. Right.
    Mr. Denham. And, Mr. Kotz, in your opinion, the five 
individuals that signed the contract, that changed the dates, 
or the one date that was changed and the other four that were 
backdated, is that of criminal nature?
    Mr. Kotz. Yes. We have actually referred that matter to the 
Department of Justice Public Integrity Section. We've had 
conversations with them about that matter, and we will follow 
up with the Department of Justice as they see fit with respect 
to any criminal liability.
    Mr. Denham. And where are they in that process; do you 
know?
    Mr. Kotz. They've asked for the relevant documents. We've 
provided them to them, and they are making determinations.
    Mr. Denham. How long does that normally take?
    Mr. Kotz. They told us that they would get back to us 
relatively shortly. We haven't heard back from them yet, but it 
shouldn't take very long. Obviously if they decide to take the 
matter and bring a prosecution, that would take a significant 
amount of time, but it shouldn't take very long for them to 
determine whether to undertake an action.
    Mr. Denham. When did you take it to the DOJ?
    Mr. Kotz. In the last few weeks.
    Mr. Denham. Few weeks. Is that shortly in Government terms?
    Mr. Kotz. No, no, we previously sent it to DOJ in the last 
few weeks.
    Mr. Denham. But you said you expect to hear back from them 
shortly.
    Mr. Kotz. Oh, yes, yes, yes. Certainly in the next couple 
weeks I would think we would hear back from them. They have 
indicated to us that we would have already heard back. We 
haven't heard back yet, but it should be, I would think, in the 
next couple weeks, yes.
    Mr. Denham. So is DOJ conducting an investigation?
    Mr. Kotz. Yeah. They're looking at the information we have, 
and they're going to make a determination whether they want to 
then bring a criminal action or at least initiate an 
investigation to bring a criminal action. We would then 
cooperate with them, and then the action would go forward.
    Mr. Denham. Thank you.
    Chairman Schapiro, do you have anything else to add to the 
testimony today?
    Ms. Schapiro. No.
    Mr. Denham. I would like to follow up one more time on the 
leasing authority itself. Do you think the leasing authority 
should go where?
    Ms. Schapiro. To the GSA.
    Mr. Denham. And in the future should the leasing authority 
ever come back to the SEC?
    Ms. Schapiro. I don't believe so.
    Mr. Denham. I will take that as an endorsement of our 
current legislation.
    Any further questions?
    Thank you. Again, I would like to thank you for your 
testimony today. We're going to be following up with questions 
for the record, and I would ask that you provide your responses 
in a timely manner to the subcommittee.
    I would ask unanimous consent that the record of today's 
hearing remain open until such time as our witnesses have 
provided answers to any questions that may be submitted to them 
in writing, and unanimous consent that the record remain open 
for 15 days for any additional comments and information 
submitted by Members or witnesses to be included in the record 
of today's hearing. Without objection, so ordered.
    Mr. Denham. This concludes today's hearing on the SEC. 
Thank you.
    [Whereupon, at 3:52 p.m., the subcommittee was adjourned.]
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