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THE SECURITIES AND EXCHANGE COMMISSION’S 

$500 MILLION FLEECING OF AMERICA 

(112–37) 

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 

JUNE 16, 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 

COMMITTEE ON TRANSPORTATION AND INFRASTRUCTURE 

JOHN L. MICA, Florida, Chairman 

DON YOUNG, Alaska 

THOMAS E. PETRI, Wisconsin 

HOWARD COBLE, North Carolina 

JOHN J. DUNCAN, JR., Tennessee 

FRANK A. LOBIONDO, New Jersey 

GARY G. MILLER, California 

TIMOTHY V. JOHNSON, Illinois 

SAM GRAVES, Missouri 

BILL SHUSTER, Pennsylvania 

SHELLEY MOORE CAPITO, West Virginia 

JEAN SCHMIDT, Ohio 

CANDICE S. MILLER, Michigan 

DUNCAN HUNTER, California 

ANDY HARRIS, Maryland 

ERIC A. ‘‘RICK’’ CRAWFORD, Arkansas 

JAIME HERRERA BEUTLER, Washington 

FRANK C. GUINTA, New Hampshire 

RANDY HULTGREN, Illinois 

LOU BARLETTA, Pennsylvania 

CHIP CRAVAACK, Minnesota 

BLAKE FARENTHOLD, Texas 

LARRY BUCSHON, Indiana 

BILLY LONG, Missouri 

BOB GIBBS, Ohio 

PATRICK MEEHAN, Pennsylvania 

RICHARD L. HANNA, New York 

JEFFREY M. LANDRY, Louisiana 

STEVE SOUTHERLAND II, Florida 

JEFF DENHAM, California 

JAMES LANKFORD, Oklahoma 

REID J. RIBBLE, Wisconsin 

CHARLES J. ‘‘CHUCK’’ FLEISCHMANN, 

Tennessee 

NICK J. RAHALL II, West Virginia 

PETER A. DEFAZIO, Oregon 

JERRY F. COSTELLO, Illinois 

ELEANOR HOLMES NORTON, District of 

Columbia 

JERROLD NADLER, New York 

CORRINE BROWN, Florida 

BOB FILNER, California 

EDDIE BERNICE JOHNSON, Texas 

ELIJAH E. CUMMINGS, Maryland 

LEONARD L. BOSWELL, Iowa 

TIM HOLDEN, Pennsylvania 

RICK LARSEN, Washington 

MICHAEL E. CAPUANO, Massachusetts 

TIMOTHY H. BISHOP, New York 

MICHAEL H. MICHAUD, Maine 

RUSS CARNAHAN, Missouri 

GRACE F. NAPOLITANO, California 

DANIEL LIPINSKI, Illinois 

MAZIE K. HIRONO, Hawaii 

JASON ALTMIRE, Pennsylvania 

TIMOTHY J. WALZ, Minnesota 

HEATH SHULER, North Carolina 

STEVE COHEN, Tennessee 

LAURA RICHARDSON, California 

ALBIO SIRES, New Jersey 

DONNA F. EDWARDS, Maryland 

SUBCOMMITTEE ON ECONOMIC DEVELOPMENT, PUBLIC BUILDINGS, AND EMERGENCY

MANAGEMENT

JEFF DENHAM, California, Chairman 

TIMOTHY V. JOHNSON, Illinois 

ERIC A. ‘‘RICK’’ CRAWFORD, Arkansas, 

Vice Chair 

RANDY HULTGREN, Illinois 

LOU BARLETTA, Pennsylvania 

BOB GIBBS, Ohio 

PATRICK MEEHAN, Pennsylvania 

RICHARD L. HANNA, New York 

JOHN L. MICA, Florida (Ex Officio) 

VACANCY 

ELEANOR HOLMES NORTON, District of 

Columbia 

HEATH SHULER, North Carolina 

MICHAEL H. MICHAUD, Maine 

RUSS CARNAHAN, Missouri 

TIMOTHY J. WALZ, Minnesota 

DONNA F. EDWARDS, Maryland 

BOB FILNER, California 

NICK J. RAHALL II, West Virginia 

(Ex Officio) 

(II) 

(III) 

CONTENTS Page 

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

TESTIMONY 

Clancy, Elaine, Director of Leasing, National Capital Region, U.S. General 

Services Administration ...................................................................................... 6 

Heslop, Jeffery, Chief Operating Officer and Acting Executive Director, U.S. 

Securities and Exchange Commission, accompanied by Mark D. Cahn, General Counsel, U.S. Securities and Exchange Commission ................................ 6 

Kotz, Hon. H. David, Inspector General, U.S. Securities and Exchange Commission .................................................................................................................. 6 

PREPARED STATEMENTS SUBMITTED BY MEMBERS OF CONGRESS 

Norton, Hon. Eleanor Holmes, of the District of Columbia ................................. 33 

PREPARED STATEMENTS SUBMITTED BY WITNESSES 

Clancy, Elaine .......................................................................................................... 35 

Heslop, Jeffery ......................................................................................................... 40 

Kotz, Hon. H. David ................................................................................................ 49 

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(1) 

THE SECURITIES AND EXCHANGE 

COMMISSION’S $500 MILLION 

FLEECING OF AMERICA 

THURSDAY, JUNE 16, 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 notice, at 10:10 a.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 

welcome our witnesses and thank them for testifying today. 

After reading the inspector general’s report, it is hard to comprehend how easily the SEC can just commit to spending $500 million of the American people’s money in just a few days. It is as 

though the SEC did not get the memo that Congress and the administration have both been talking about cutting the waste in our 

Federal buildings. But it seems the SEC thought it was business 

as usual, and operated with a Congress-is-throwing-money-at-us 

mentality, in total disregard that it is not their money, but the 

American people’s money. 

Our subcommittee has been working to cut waste in Federal 

buildings. Billions of taxpayer dollars are wasted in underused 

property, the overbuilding of Federal facilities, and in our over-reliance on costly leases to meet long-term space needs. Unfortunately, 

examples of waste abound in our management of Federal real property. But the SEC’s massive half-a-billion-dollar lease for space it 

did not need goes far beyond mismanagement. There must be accountability and consequences for this type of cavalier spending of 

taxpayer money. 

As outlined in the inspector general’s report issued last month on 

July 28, 2010, the Securities and Exchange Commission signed a 

letter contract to lease space at Constitution Center in Washington, 

DC. The agreement was more than 900,000 square feet of space, 

with an option to lease an additional 500,000 square feet. 

Let’s put this in perspective. This is a total of 1.4 million square 

feet of space for an agency that has just over 3,000 personnel working in the national capital region. The 1.4 million would be on top 

of the 1.3 million square feet the SEC leases for its headquarters 

at station—near Union Station. Just to give you an example, 3,000 

employees, by GSA’s standards, we would have enough room beVerDate Aug 31 2005 11:45 Feb 01, 2012 Jkt 000000 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 P:\HEARINGS\112\ED\6-16-1~1\66920.TXT JEAN
2 

tween these 2 facilities for 12,000 employees. That is by GSA 

standards. 

Constitution Center is the former location of the DOT headquarters, and was completely renovated and upgraded by the 

owner. And we will start the slides now. 

[Slide.] 

Mr. DENHAM. This first slide is the interior courtyard of the 

building. Next slide. 

[Slide.] 

Mr. DENHAM. Here is an image of one of the lobby areas overlooking the courtyard. Next slide. 

[Slide.] 

Mr. DENHAM. This slide is taken from one of the top floors facing 

northwest, towards the Capitol building. Next slide. 

[Slide.] 

Mr. DENHAM. Another view looking north. 

[Slide.] 

Mr. DENHAM. And finally, a view looking southwest towards the 

water and the airport. 

[Slide.] 

Mr. DENHAM. This last view is from the quadrant of the remaining 300,000 square feet of space SEC insisted the building owner 

reserve for them. 

The total cost of this lease is over $550 million over 10 years. 

The findings of the inspector general are breathtaking. The SEC 

bound the taxpayer to more than a half-a-billion dollars based on 

the back-of-the-envelope calculations that were inflated, and just 

simply wrong. 

There was no formal written approval process. In fact, the final 

decision was made orally, after only a 10-minute meeting with the 

chairman of the SEC. There was no OMB approval and no ional 

approval. And, on top of that, SEC proceeded with a sole source 

contract negotiated over the course of just days. 

The justification for this, as required by law, was completed after 

the fact, and three of the four signatures were signed before the 

document was even completed. One of the signatures was backdated. And then the date was later altered, giving the impression 

that justification for the sole source procurement was completed 

more than a month before it actually was. 

And there is a serious question as to whether the Antideficiency 

Act was violated. It appears someone at the SEC saw Constitution 

Center and decided that’s where they wanted the SEC to move, 

and then everything else had to fit: the staffing figures, space 

needs, and justification. 

But today, in addition to the investigation, what led to this lease 

agreement, we are also examining whether the SEC should keep its 

independent leasing authority. And we know that this is not the 

first time SEC has mismanaged its leasing authority. Next slide. 

[Slide.] 

Mr. DENHAM. Here we have a slide showing a timeline of just 

some of the instances of mismanagement by the SEC, and the cost 

to the taxpayer. What this shows is a number of troubling trends. 

The SEC has a history of sole-source leases that even GSA, in 

its management of over 180 million square feet of leased space, 

3 

rarely uses. SEC has a history of bad leasing decisions that cost 

the taxpayer millions: double rent payments in New York, 

unbudgeted cost in SEC’s headquarters, and holdover fees in San 

Francisco. 

In addition to these, we know the SEC is now paying nearly $20 

more per square foot for its more recent Station Place headquarters 

lease than comparable Federal leases near it. And SEC has paid 

$200,000 a year of taxpayer dollars for off-duty officers to provide 

security at a Virginia facility already secured by the Federal agency in the building, the Commerce Department. 

It is bad decision after bad decision, and it is the taxpayer that 

loses. The SEC must realize that it is real money they have spent, 

and that it is accountable to the American people who expect all 

of us to be good stewards of Federal resources. 

At some point the waste has to end. There are very serious 

issues raised in the IG report. And the more our subcommittee investigates, more questions are raised. 

I would like to state for the record that we formally requested 

the presence of certain current and former employees of the SEC, 

including associate executive director Sharon Sheehan, and former 

executive director Diego Ruiz. And they either refused to testify, or 

failed to respond to our request. 

I will be listening closely to the responses of the witnesses today. 

And based on the responses we get, I will be talking further with 

Ranking Member Norton, the IG, and the GAO, to determine the 

appropriate next steps in our investigation. 

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. Thank you very much, Mr. Chairman. 

And thank you for calling today’s hearing. I certainly want to welcome today’s witnesses to the hearing on the inspector general’s 

May 16, 2011, report on the SEC leasing deal for the Constitution 

Center building located here in southeast Washington. 

The shocking findings by the IG on a leasing agreement for more 

than half-a-billion dollars painted an outrageous picture of an 

agency that was incompetent to engage in real estate transactions, 

and consequently developed a culture that allowed bureaucrats to 

make major unsupported financial commitments on behalf of the 

agency using outright deceit, and possibly fraud. 

The IG findings are so serious that they point towards possible 

criminal violations by Federal employees in the course of official activities, leading to the execution of the leasing agreement. According to the IG, several SEC employees worked in concert to repeatedly subvert the direction provided by the SEC chairwoman on the 

placement of new employees, made false representations, and doctored documents to justify a sole-source leasing agreement. 

SEC employees relied on the self-delusion that Congress would 

appropriate all the authorized funds under Dodd-Frank, the new 

regulatory reform legislation, although the notion that SEC would 

obtain an appropriation for a full authorization for new employees 

was historically inconsistent with SEC’s budget, and flies in the 

face of the simple fact and widespread knowledge that authorization of funding never has ensured full appropriation of those funds. 

4 

More importantly, the notion that all the new employees would 

be housed at the SEC headquarters was found to be completely unsupported, and at odds with the express direction by the SEC chair 

to the staff that most of the growth should be concentrated in regional offices. 

The abuse did not end there. Contrary to the General Services 

Administration standard of 230 square feet per person in an office, 

the SEC Office of Administrative Services, or OAS, provided an estimated need for 400 square feet per person, nearly double the GSA 

standard. This overly generous standard was later inflated by a 

factor of 49 percent for auxiliary staff, even though the 400 square 

feet per person actually was meant to accommodate the auxiliary 

staff. 

The IG concluded that this inflation by the SEC OAS ‘‘employed 

a series of unfounded egregiously flawed and irresponsible projections to derive the purported need to lease 900,000 square feet.’’ 

Even if the SEC had received all the authorized funds provided 

by Dodd-Frank, the SEC would have needed, at most, an additional 

300,000 square feet, only a third of the 900,000 the Agency eventually leased. Why, then, did the SEC lease 900,000 square feet? The 

answer provided by the IG is that a few SEC OAS officials had 

what he called grandiose plans to lease the upscale Constitution 

Center. Having set the target square footage, they worked backwards, using a ‘‘deeply flawed and unsound analysis’’ to justify the 

lease, according to the IG. To compound the damage, the $556 million lease agreement was 

conducted as the Government never does, as a sole-source contract 

that was completed in over 3 days, just over 3 days. Only after the 

contract was signed was a justification and approval for other than 

full and open competition prepared. And, according to the IG, it 

was inadequate, not properly reviewed, and back-dated, and prepared well past the deadline—regulatory deadline for such contracts. 

The IG also has raised the serious question that this leasing 

agreement may have violated the Antideficiency Act, which prohibits officers or employees of the Government from committing the 

Government to a payment of money before an appropriation is 

made, authorized by law. 

Astonishingly, this transaction represents a pattern, since the 

SEC was granted leasing authority in 1990. The Agency has made 

repeated missteps from the build-to-suit lease for the SEC headquarters behind Union Station that led to $48 million in construction overages, and the mishandling of lease transactions in San 

Francisco and New York, forming a leasing division only 19 years 

after receiving leasing authority. 

The SEC was granted its own leasing authority, with the expectation that the authority would be ‘‘exercised vigorously by the 

Commission to achieve cost savings and to increase the Commission’s productivity and efficiency.’’ Sadly, the opposite has been the 

case, and calls into serious question the grant of leasing authority 

to the SEC or to any Federal agency. 

This subcommittee has an obligation to taxpayers to understand 

the steps that led to the Constitution Center lease, to take corrective measures to ensure the SEC can no longer engage in leasing 

5 

activities, and to ensure that appropriate action regarding the employees involved is taken. 

Notably, several employees implicated in this leasing transaction 

have refused the invitation of this subcommittee to testify. And at 

least one of the principal players named in the IG report still has 

oversight of the SEC leasing program. 

The SEC leadership is on notice that if there is retaliation 

against the employees that provided testimony to the SEC IG, we 

will respond immediately. I appreciate the testimony that has been 

prepared. I look forward to hearing from today’s witnesses. 

Mr. Chairman, I have served on this subcommittee for 20 years. 

I have seen mishaps by agencies of various kinds, some of them deliberate. I doubt that I or any other Member of Congress has ever 

seen an abuse approaching this, that was as determinedly done by 

the employees involved. I have, therefore, drafted a bill to revoke 

SEC’s leasing authority. I recognize that the BRAC bill which you 

and I are working on now will, in fact, revoke the authority of 

agencies outside of the GSA to engage in such leasing, agencies 

that may have expertise in the mission assigned to them by Congress, but certainly not in a very complicated different area of enterprise, and that is real estate areas. 

I believe that taxpayers would not be content if we said, ‘‘Don’t 

worry, we will get to this when the BRAC bill is done.’’ That takes 

two Houses, it takes going to the floor. I believe an immediate response by this committee is necessary, particularly since it has always been doubtful that agencies outside the GSA should have 

such authority. 

So, I will be asking you, Mr. Chairman, to look at the bill I have 

drafted, and hope that you will cosponsor that bill with me. And 

perhaps we can get that bill to the floor before this calendar year 

is over. 

Mr. DENHAM. Thank you. I look forward to that. This abuse is 

not going to be tolerated, and we will look forward to seeing that, 

and working with you on the issue. 

Today we are going to ask the witnesses to provide testimony 

under oath. I would ask each of the witnesses 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? 

WITNESSES. I do. 

Mr. DENHAM. You may be seated. Our first and only panel will 

be the Honorable David Kotz, inspector general, U.S. Securities 

and Exchange Commission; Mr. Jeff Heslop, chief operating officer 

and executive director, U.S. Securities and Exchange Commission—and Mr. Heslop is accompanied by Mr. Mark Cahn, SEC general counsel; and Ms. Elaine Clancy, director of leasing, national 

capital region, U.S. General Services Administration. 

I ask unanimous consent that our witnesses’ full statements be 

included in the record. 

[No response.] 

Mr. DENHAM. 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. 

6 

Mr. Kotz, you may proceed. 

TESTIMONY OF THE HONORABLE H. DAVID KOTZ, INSPECTOR 

GENERAL, U.S. SECURITIES AND EXCHANGE COMMISSION; 

JEFFERY HESLOP, CHIEF OPERATING OFFICER AND ACTING 

EXECUTIVE DIRECTOR, U.S. SECURITIES AND EXCHANGE 

COMMISSION; MARK D. CAHN, GENERAL COUNSEL, U.S. SECURITIES AND EXCHANGE COMMISSION; AND ELAINE 

CLANCY, DIRECTOR OF LEASING, NATIONAL CAPITAL REGION, U.S. GENERAL SERVICES ADMINISTRATION 

Mr. KOTZ. Thank you. 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 November 16, 2010, we opened an investigation as a result 

of receiving numerous written complaints concerning the SEC’s decisions and actions related to the leasing of office space at Constitution Center. 

As part of our investigative efforts, we obtained and searched 

over 1.5 million emails, for a total of 27 current and former SEC 

employees for various time periods pertinent to the investigation. 

We carefully reviewed and analyzed thousands of pages of documents, and interviewed or took the testimony of 29 witnesses with 

knowledge of facts or circumstances surrounding the SEC’s activities. 

On May 16, 2011, we issued a comprehensive report of our investigation containing over 90 pages of analysis, and over 150 exhibits. 

Our investigation concluded 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 represented another 

in a long history of missteps and misguided leasing decisions made 

by the SEC since it was granted independent leasing authority by 

Congress in 1990. 

We found that, based on estimates of increased funding, primarily to meet the requirements of Dodd-Frank, between June and 

July of 2010 the SEC’s 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. We found that OAS grossly over-estimated the 

amount of space needed for the SEC’s projected expansion by more 

than 300 percent, and used these groundless and unsupportable 

figures to justify the SEC committing to an expenditure of over 

$556 million over 10 years. 

We found that OAS used the standard of 400 square feet per person to calculate how much space would be needed for the additional 

positions it believed it was gaining. The 400-square-foot standard 

was described by one of the people working on the lease as a backof-the-envelope calculation. 

The standard was an all-inclusive number that included common 

space and amenities, an additional 10 percent for contractors, 10 

percent for interns and temporary staff, and 5 percent for future 

growth. Notwithstanding this all-inclusive number, when OAS 

later did its calculations to justify the Constitution Center lease, it 

added even more unnecessary space by double-counting for contracVerDate Aug 31 2005 11:45 Feb 01, 2012 Jkt 000000 PO 00000 Frm 00018 Fmt 6633 Sfmt 6633 P:\HEARINGS\112\ED\6-16-1~1\66920.TXT JEAN
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tors, interns, and temporary staff. We also found that each one of 

these estimates was wildly inflated, and unsupported by the data 

OAS was using. 

After the SEC committed itself to the 10-year lease term at a 

cost of over $556 million, it entered into a justification and approval for other than full and open competition, which is required 

by the Federal Acquisition Regulation, FAR, when an agency decides not to allow for full and open competition on a procurement 

or lease. The FAR permits other than full and open competition 

when the agency’s need is of such an unusual and compelling urgency that the Government would be seriously injured unless the 

agency is permitted to limit the number of sources from which it 

solicits bids. 

The IG investigation found that the justification and approval to 

lease space at Constitution Center without competition was inadequate, not properly reviewed, and back-dated. The OAS analyst 

who signed the justification and approval as the SEC’s competition 

advocate acknowledged in testimony that the SEC would not, in 

fact, be seriously injured if it lost the opportunity to rent this 

space. She admitted that she took no substantive steps to verify 

that the information in the justification and approval was accurate, 

and that when she signed the document she was not aware that 

the funding had not been appropriated, and she did not have an 

understanding of when the projected personnel were expected to be 

hired. 

The FAR also requires that the justification and approval be publicly posted within 30 days after contract award. As the letter contract for Constitution Center was signed on July 28th, the deadline 

for publication of the justification of approval was August 27. On 

September 3rd, the SEC publicly posted the justification and approval, which was signed by 4 individuals as dated August 2nd. 

Our investigation found, however, that the justification and approval was not finalized until September 2nd, and that substantial 

revisions were being made up to that date. We found that three of 

the four signatories executed the signature page on August 2nd, before a draft even remotely close to the final version existed. We 

found that the SEC’s competition advocate executed the signature 

page on August 31st, initially back-dated her signature to August 

27th, and then subsequently whited out the ‘‘7’’ to make it appear 

that she signed the document on August 2nd. 

The actions of the signatory to the justification and approval 

gave the public the false impression that the document was finalized a few days after the letter contract was signed, and that there 

was only a minor delay in its publication. 

Based on these findings, we issued a report recommending that 

a thorough and comprehensive review and assessment of all matters currently under OAS’s purview be conducted, and that the 

SEC determine the appropriate disciplinary and/or performancebased actions to be taken for the matters discussed in the investigation. 

Thank you, and I am happy to answer any questions. 

Mr. DENHAM. Thank you, Mr. Kotz. 

Mr. Heslop, you may proceed. 

8 

Mr. HESLOP. My name is Jeff Heslop, chief operating officer and 

acting executive director of the U.S. Securities and Exchange Commission. I appreciate the opportunity to testify on behalf of the 

Commission with respect to the Agency’s lease of office space at 

Constitution Center, and to share with you information on the actions the SEC is taking in response to the IG report. 

The IG report on the leasing of Constitution Center revealed a 

number of flaws in the SEC’s leasing process. Although the SEC 

has not paid any rent, and is no longer obligated for the majority 

of the space, it is clear that this leasing decision lacked the rigor 

and attention to detail demanded for decisions of this magnitude. 

As such, we are committed to implementing whatever changes are 

needed to improve the process, starting with the retention of outside experts to conduct an assessment, a comprehensive assessment, of our entire leasing organization. 

On July 28th of 2010, the SEC entered into an agreement to 

lease approximately 900,000 rentable square feet of office space at 

Constitution Center to house new staff necessitated by the DoddFrank Act and to address the facilities needs created by expiring 

leases in Alexandria, Virginia, at our back office operations center. 

The SEC’s agreement contained a 10-year term, and envisioned 

space being delivered to the SEC in phases. 

In the fall of 2010, when it became apparent that the SEC would 

be limited by the continuing resolution and would not be receiving 

further funding for fiscal year 2011 to hire additional staff for the 

new responsibilities it received under regulatory reform, and in 

light of significant uncertainty regarding the Agency’s budget for 

fiscal year 2012, the Agency’s leasing branch worked with the Constitution Center landlord to identify two non-appropriated financial 

regulatory agencies—the Office of the Comptroller of Currency and 

the Federal Housing Finance Agency—that were able to take the 

majority of the space allocated to the SEC, a total of approximately 

558,000 square feet. The SEC’s releases that enabled the landlord 

to lease space to other Federal tenants were conditioned upon the 

SEC being released from all obligations for the space. 

With respect to the remaining space, the SEC earlier this year 

determined that the uncertainty of the Agency’s budget for fiscal 

year 2012 and beyond counsels against retaining it. To this end, 

SEC staff is currently working with the General Services Administration to identify other Federal Government agencies to fill the remaining space. 

The inspector general has identified a number of flaws with the 

leasing process. My charge from the commissioner—from the chairman is to address the issues identified in the IG report, and improve that process. 

The SEC is actively at work, implementing the inspector general’s recommendations, and taking steps to strengthen our real 

property leasing program. For example, the authority previously 

exercised by the executive director has been transferred to me, as 

the chief operating officer. All future property leasing decisions 

must be approved by me, as the COO, before any leases are signed. 

Second, as I mentioned, we’re conducting a comprehensive, independent assessment of our leasing operations with outside experts. 

9 

Third, all future leasing obligations will require consultation 

with an executive senior-level facilities management committee before they can be incurred or recommended for approval. This crossorganizational committee will provide oversight and guidance to 

the SEC leasing process, and will serve as a forum for the executive-level discussion of the Agency’s leasing decisions. 

Fourth, we’re in the process of developing a more clearly defined 

leasing policy and associated process. 

And, fifth, we have initiated efforts to acquire technology that 

will permit us to automate, and will provide more efficient space 

planning, move management, and asset management. Such systems, available on an off-the-shelf basis, and commonly used in private industry as a best practice, should provide managers with significantly more timely and accurate analysis and planning to deliver these efficient space utilization at our office locations. 

In addition, the IG report recommends that the Agency consider 

whether disciplinary action should be taken against current staff 

members. The SEC has begun this review, in accordance with Federal personnel law. At present, the Office of Human Resources and 

the Office of General Counsel are analyzing the investigative 

record, and will recommend appropriate disciplinary action to me. 

I would then decide any appropriate disciplinary action that should 

be taken. 

In conclusion, the SEC is actively at work on a number of fronts 

to strengthen the Agency’s real property leasing program. Although 

the SEC has paid no rent on the space, and has worked with the 

landlord to identify substitute tenants, the OIG report identified 

flaws in the leasing process in need of correction. We are endeavoring to take all necessary and appropriate steps, including implementing new controls and procedures to ensure that we address 

the significant issues identified in the IG’s report. 

I would be happy to answer any questions at this time. 

Mr. DENHAM. Thank you, Mr. Heslop. 

Ms. Clancy, you may proceed. 

Ms. CLANCY. Good morning, Chairman Denham, Ranking Member Norton, and members of the committee. I appreciate the opportunity to be here today, and be invited to discuss the GSA’s approach to acquiring lease space for Federal agencies. 

The GSA searches for effective ways to provide space for Federal 

agencies, to help them achieve their missions while protecting the 

public’s interest. In order to accomplish these goals, the GSA implements a deliberate and comprehensive process that ensures adequate competition, and considers other public interest. We manage 

an inventory of over 370 million square feet of space, approximately half of which is leased space. 

The GSA effectively manages our leased space, which currently 

has a vacancy rate of less than 1 percent. Leases under the current 

prospectus threshold represent approximately 98 percent of all of 

our leases. Prospectus-level leases represent 2 percent of our leases 

transacted, and 33 percent of the annual GSA rent pays—that the 

GSA pays to lessors. 

The requirements development evaluation process of these leases 

is more extensive, due to the size and the cost. These large leases 

require review and clearance by GSA’s central office and OMB 

10 

prior to submission to Congress. OMB ensures that proposed leases 

comply with lease scoring rules, and ensures that the proposed action is consistent with personnel and resource estimated in the 

President’s budget. 

Once the GSA has worked with an agency to carefully define 

their requirements, and assess that their needs are based on accurate projections and available funds, GSA’s lease acquisitions process runs through a carefully sequenced set of steps to ensure adequate competition and a fair rental rate for taxpayers. 

One of GSA’s fundamental strategies is to promote competition 

by attempting to maximize the number of potential qualified 

offerors for a lease solicitation. By improving communication with 

the commercial real estate sector, GSA’s presence in the market is 

strengthened, and a sense of partnership with leasing industry 

practitioners emerges, resulting in increased competition for GSA 

leases. 

GSA follows a sequenced and efficient leasing acquisition process, which includes market advertising, surveying assessments, 

evaluation, negotiations, and contract execution, which are outlined 

in detail in my written statement. GSA constantly looks for ways 

to streamline, standardize, and simplify our leasing process, to 

minimize the cost associated with acquiring a lease. 

We also constantly assess our performance against other rental 

rates in the market. GSA is committed to adapting its internal 

processes to mirror leasing in the private sector, and to fully utilize 

the market leverage that results from the Federal Government 

being a reliable and desirable tenant. 

In regards to the SEC—the lease procured by the SEC at Constitution Center in Washington, DC, the SEC has recently reached 

out to the GSA to request our assistance in filling the remaining 

vacant space. The GSA is gathering additional details pertaining to 

this contract, and the conditions under which the SEC procured the 

lease. To the extent that we can reasonably assist in protecting the 

public’s interest and meeting the space needs of other agencies, we 

will consider doing so. 

In conclusion, the GSA’s approach to leasing Federal space allows agencies to achieve their mission effectively, and protect the 

public’s interest in ensuring that space is acquired at a fair rate, 

while being flexible to ensure that the highest levels of controls are 

placed on the largest potential leasing actions. 

In addition, we aim to constantly improve our processes, to attract further competition from the private sector, and to minimize 

cost to the taxpayers. 

Thank you for inviting me to appear before you today, and I appreciate the opportunity to discuss the GSA’s leasing practices and 

expertise. I welcome your questions. 

Mr. DENHAM. Thank you, Ms. Clancy. We will now start our first 

round of questioning. We expect that there will be several rounds 

today, because I don’t think there is any shortage of questions that 

need to be answered here. 

First, Mr. Heslop, can you state for the record your position and 

responsibilities at the SEC? 

Mr. HESLOP. I am the chief operating officer and acting executive 

director of the SEC. My responsibilities include oversight of our IT 

11 

operation, our human resources operation, the Office of Administrative Services, FOIA, and records management, and Office of Financial Management. 

Mr. DENHAM. Leasing authority under one of those? 

Mr. HESLOP. Yes, the Office of Administrative Services. 

Mr. DENHAM. And does the SEC intend to issue a formal response to the IG report issued in May? 

Mr. HESLOP. We are taking appropriate action against the IG’s 

report that was issued. We are, as I stated, having a comprehensive independent outside assessment done of the OAS organization, 

and looking at every recommendation in the IG’s report, and taking 

appropriate action against them. 

Mr. DENHAM. So are you going to be issuing a formal response 

to the IG report? 

Mr. HESLOP. At this time there is no intent to issue a formal response. 

Mr. DENHAM. Why? Why wouldn’t you respond to them formally? 

Mr. HESLOP. There is no requirement to respond to them formally. 

Mr. CAHN. If I could, Chairman Denham, if I could? 

Mr. DENHAM. Sure, Mr. Cahn. 

Mr. CAHN. Mark Cahn, I am the general counsel at the SEC. 

Typically, when the inspector general issues investigative reports 

such as this, the agency reviews the report and responds, as Mr. 

Heslop describes, to take responsive action—— 

Mr. DENHAM. Will you pull your microphone closer, please? 

Mr. CAHN. Oh, I’m sorry—to take responsive action in response 

to the report. It is not the practice of the Agency, in response to 

investigative reports such as these, to issue any sort of formal response. That is as distinguished from audits that the inspector general prepares, in which the practice is to have a management response to the audit. But I suppose the inspector general could 

speak more directly to that. 

Mr. DENHAM. What is customary, Mr. Kotz? 

Mr. KOTZ. Yes, I mean we don’t generally have a formal response 

to our investigative reports. What we do expect is that the recommendations in our report be implemented, that a process be put 

in place, and that our disciplinary action recommendations be implemented, as well. 

So, I mean, I am not sure we need a formal response. What we 

need them to do is fix the problems in the Office of Administrative 

Services, and discipline the people who we found to have violated 

the rules. 

Mr. DENHAM. I will look at it from a business perspective. When 

a Government agency comes down on a business, they are not only 

expected to have the recommendations implemented, but to have a 

quick, rapid response on the timeline on when you are going to get 

these things done. 

So, I would expect to see some type of response, you know. I 

want to know. Is it going to take you a year to fix this? Ten years? 

I want to know what the response is to the American taxpayers. 

So I am looking for how long—what you are going to do to correct 

the action, how long it is going to take. And I would think a simple 

response to the IG’s report would at least be a good starting point. 

12 

Mr. Heslop, one of the critical steps in space planning and determining how much new space is needed is developing a program of 

requirements. Was there a program of requirements developed 

prior to July 28, 2010? 

Mr. HESLOP. To my knowledge, I don’t know. I have recently inherited this function. Again, my role is to try to fix the process, a 

very flawed process that led us to this situation. We are in the 

process of doing it, taking a number of steps that I outlined in my 

testimony. So I can’t address the question about the history. 

Mr. DENHAM. And how long has it been since you have assumed 

these new—this new role? 

Mr. HESLOP. Approximately 7 weeks. 

Mr. DENHAM. Mr. Cahn, same question. 

Mr. CAHN. I am not—I don’t know whether a program of requirements was prepared. The inspector general reviewed the documentation in connection with this particular leasing activity. So he 

may be aware of whether that sort of documentation was prepared. 

I just don’t know. 

Mr. DENHAM. You guys were both aware you were going to testify in front of Congress today, correct? 

Mr. CAHN. Yes, sir. 

Mr. DENHAM. This seems like a pretty basic question. I mean 

this is standard procedure, is it not? 

Mr. CAHN. I assume it is. I just don’t—I was not involved in the 

transaction. I assumed the position of general counsel in March of 

this year. That is not to say that the general counsel position would 

have been involved in that level of detail of documentation of a 

leasing decision; I just don’t know what documentation was prepared by the Office of Administrative Services, but we will be 

happy to look into that inquiry and get back to you. 

Mr. DENHAM. Chief operating officer, is this not part of standard 

operating procedure? 

Mr. HESLOP. Again, I am new to the position, I am reviewing the 

current process, and trying to improve and fix that process, going 

forward. So I can’t speak to past operating practices, other than to 

tell you, as you have seen, they were deeply flawed, and we are 

doing our best to turn them around. 

Mr. DENHAM. Ms. Clancy, the GSA’s—when GSA goes out and 

does a lease—program of requirements? 

Ms. CLANCY. Yes. For a lease of this size, we would work with 

an agency initially to develop that program of requirements, specifically looking at their existing space use, the use of their existing 

space, how we might house that agency efficiently, given the current Presidential directives, and then directives from OMB to reduce their space requirements, overall. 

And as we were developing that requirement, we would then— 

we have a number of checks and balances that we use, because we 

work with those agencies at the NCR level. Then it goes, again, as 

I said before, to our central office, and then to OMB. Once it 

reaches OMB, it is not just the GSA’s examiners who are looking 

at the space requirements, but it is also the agency’s examiners 

who would be looking at those requirements in conjunction with 

ours, to confirm that those requirements are, in fact, what the 

agency actually needs. 

13 

Mr. DENHAM. Standard operating procedure. GSA goes out for a 

very large-size lease, you put together a program of requirements. 

You know what you are going out there to lease, for how many employees, how big of a space you need, what location you need. I 

mean there has got to be a program of requirements that you are 

looking at before you go out and secure space, do you not? 

Ms. CLANCY. That is correct. And it is a fairly extensive process 

that we use. 

Mr. DENHAM. Mr. Kotz, just a quick follow-up. Standard operating procedure between different agencies, program of requirements? 

Mr. KOTZ. Yes, I do believe it is a standard operating procedure, 

and I don’t believe it was done in this case. 

Mr. DENHAM. Thank you. And more of a statement than a question, because I am out of time and will come back to this. But you 

have been the chief operating officer prior to assuming the new duties, have you not? 

Mr. HESLOP. That is correct, for about half of the duties I outlined when you asked me the original question. I did not have oversight of the Office of Administrative Services, which is where this 

leasing branch resides. 

Mr. DENHAM. But as chief operating officer—I am a new guy 

here, but I can understanding a program of requirements in—both 

from a business perspective, as well as from GSA and the IG. 

You’ve been COO—I mean that seems pretty basic, that you would 

at least know that a program of requirements is something that 

every agency, every business, would be going out to get some specific requirements on. 

Ranking Member Norton? 

Ms. NORTON. Thank you, Mr. Chairman. The chairman asked 

about your response to the IG report. I can understand that it is 

an interesting response, very much along protocol lines, even 

though the actions of the Agency have tended to ignore rules, as 

well as protocol. 

So, let me take his question even further. Have you taken—Mr. 

Heslop and Mr. Cahn, have you taken any action of the kind recommended by the IG, such as disciplining employees, such as 

issuing—getting—asking for a formal opinion from the GAO about 

whether there has been a violation of the Antideficiency Act? 

Mr. CAHN. I can start, Congresswoman Norton. As to the last 

matter, the—with regard to the Antideficiency Act, yes, we have. 

We have recently sent over a formal request for an opinion from 

the comptroller general on the question of whether the manner in 

which we obligate funds in connection with our multiyear leases is 

consistent with the Antideficiency Act. So that letter has gone over. 

And I know that Mr. Heslop can speak to the other recommendations in the inspector general’s report. 

Ms. NORTON. Thank you, Mr. Cahn. That is minimally necessary, 

to know whether there has been—of course, Mr.—the IG indicated 

that there may have been, he is not an expert on that. You need 

to know that. The appropriators will need to know that very, very 

much, especially in light of your new responsibilities. 

And I must say it grieves me that this Agency has had to deal 

with a real estate problem outside of its mission, and now faces an 

14 

aura of abuse, right at the time when we are expecting the Agency 

to zero in on what it is Dodd-Frank asked you to do. Talking about 

a distraction, they are distractions. And they are distractions that 

an agency cannot afford. 

What about the other recommendations, Mr. Heslop? 

Mr. HESLOP. With regard to disciplinary action, we are aggressively managing it. Federal personnel law affords the named individuals due process, and we are letting that process play itself out. 

Ms. NORTON. So what processes have been instituted, as to these 

employees? 

Mr. HESLOP. Again, our general counsel and our Office of Human 

Resources are reviewing the investigative record. Upon completion 

of that review, they will provide me with recommendations for disciplinary action. I am the deciding official. I will take—I will make 

those decisions at that time—— 

Ms. NORTON. So, Mr. Cahn, you have not—the Agency has taken 

no action against the employees who were involved in this matter. 

Mr. CAHN. The Agency has commenced the review, the disciplinary process review, which—— 

Ms. NORTON. When will that review be over? 

Mr. CAHN. I can’t predict precisely when that will be over. I 

imagine it can be completed quickly. The process that is required 

under the Federal personnel laws requires some degree of time 

lapse—— 

Ms. NORTON. Mr. Cahn, you are going to have your head handed 

to you by the appropriators, given the great amount of process that 

is involved here, when there was very little process—— 

Mr. CAHN. We recognize—— 

Ms. NORTON [continuing]. Very little process involved, with respect to these transactions. 

I am the first to want due process. But the notion that no process 

has even begun, even though the IG had to take—has issued a report, is very troubling. 

Let me ask you about an employee that—whose name runs repeatedly through the IG report. The name is Sharon Sheehan. She 

is named as one of the principal players in signing the Constitution 

Center deal. Is Sharon Sheehan still on staff? 

Mr. HESLOP. Yes, Sharon Sheehan is still on staff. 

Ms. NORTON. Does her—do her responsibilities—does she have 

responsibilities in the SEC’s OAS office? 

Mr. HESLOP. Yes, she does. She is the director of the OAS office. 

Ms. NORTON. Why is she still the director of the office? 

Mr. HESLOP. Again, we are following Federal personnel law, and 

letting that process play out. Once that process has played out—— 

Ms. NORTON. Say that again. 

Mr. HESLOP. We are following Federal personnel law, and letting 

that process play out. 

Ms. NORTON. Is she still doing oversight of the leasing program? 

Mr. HESLOP. She is in that capacity. I have retained all—— 

Ms. NORTON. Mr. Cahn—— 

Mr. HESLOP [continuing]. Oversight of the leasing program. 

Ms. NORTON [continuing]. Don’t you think, as an attorney, officer 

of the court, that you should advise Mr. Heslop that he has, under 

Federal law and regulations, no obligation to retain a person in the 

15 

position where abuses have been charged by the IG? You now are 

taking it on the Agency, when you maintain her in that position. 

What—we are moving people out of positions all the time. I insist 

upon it, as a matter of due process, that they not be deprived, ultimately, of what they are entitled to. At the same time, the Government requires the Agency to take action to make certain that someone charged with abuse is not sitting there, doing exactly what she 

was doing when the charges were laid. So you will have to explain 

to me, as counsel, how this individual cited repeatedly in the IG 

report is left doing precisely what she was doing before. 

And I understand the chairman just said that we asked her that 

she be made available to come here, and the Agency refused to 

make her available. So you then have to respond for her, sir, because you, the Agency, have the ability to move this person or not. 

Why have you chosen not to do so? 

Mr. CAHN. Congresswoman Norton, my understanding is that 

this particular employee is under heightened supervision right 

now, under the direction of Mr. Heslop. 

Ms. NORTON. Why have you chosen not to remove her? Obviously, she has to be under some kind of supervision. But she is a 

supervisory employee, herself. Why are you spending the time and 

energy of Agency officials supervising a supervisor? Why do you not 

remove her? What is the reason for not removing her from the position of supervising leasing activities at the SEC? I need an answer 

to that question. 

Mr. HESLOP. Yes, ma’am. As mentioned in the IG report, the recommendation was to conduct a comprehensive assessment of the 

report, and post that review, look at disciplinary action. It is very 

clearly stated. 

Ms. NORTON. All right. Let me—I want to make sure I am not 

violating law and regulations here. Let me ask the IG. 

Is there anything that, in your judgement, requires the Agency 

to keep this employee doing what she was doing at the time your 

report was issued? Must they do that? Must they do a review before they even move her to another position, paying her in the 

same salary? Are they required to leave her at the helm, doing exactly what you criticized her for doing? 

Mr. KOTZ. Yes, I don’t believe they are. Before they go forward 

with a disciplinary process, you can move an employee into another 

office, as long as they are getting the same salary, has the same 

equivalence. That person could be moved to another office, so they 

are not involved in those duties. There are also other methods that 

could be used under personnel law, to my understanding. 

The disciplinary process, if one were to terminate Ms. Sheehan, 

which we are recommending in our report, that action be taken up 

to and including dismissal, that would take more time, and there 

would have to be a proposal and a decision made on that. 

Ms. NORTON. Mr. Chairman, I know my time is up. 

You have heard the opinion of the IG. Are you willing to consider 

removing this employee from presiding over or being involved in 

leasing activities at the SEC? Yes or no? 

Mr. HESLOP. Yes, ma’am. As I mentioned, I am the deciding official on the disciplinary action, and that is one of—— 

16 

Ms. NORTON. Before disciplinary action is taken, Mr. Heslop, are 

you willing to remove her tomorrow to another position so she is 

not sitting there, in oversight of leasing activities still going on at 

the SEC? Yes or no? 

Mr. HESLOP. I will take it under consideration. 

Ms. NORTON. Thank you, Mr. Chairman. 

Mr. DENHAM. Amazing. We ought to take some other things 

under consideration. 

Mr. Heslop, your testimony suggests that the reason the space at 

Constitution Center was not needed is because Congress did not 

provide full funding for the new staff that SEC had anticipated. 

Putting aside the appropriateness of entering into a lease before 

funding is secured, the IG report suggests—and I would agree— 

that the SEC’s anticipated staffing levels still would not have justified 900,000 square feet of space, and certainly not a sole-source 

procurement. 

Are you suggesting that the amount of the space procured by the 

SEC was an appropriate amount of space? 

Mr. HESLOP. No, sir, I am not suggesting that at all. 

Mr. DENHAM. What do you believe an appropriate amount of 

space is? 

Mr. HESLOP. An appropriate amount of space will be determined 

once we get the resources for the requirements that Congress has 

given us to execute our new responsibilities, based upon consideration of regional strategy. 

By the way, I should mention that we are undergoing a review 

of our regional strategy, which may influence our regional footprint, and how many people we put in those regions, as well as a 

determination in the local capital region of how many employees of 

the different mixes will require—will need to be housed. 

We intend to land on an industry best practice, Government best 

practice square-footage estimate, and use that in our calculations. 

We intend to cooperate closely with GSA to obtain their wise counsel and subject matter expertise. It is something we haven’t done 

in the past, it is part of our plan. 

Mr. DENHAM. Your plan. So your plan is to develop a program 

of requirements? 

Mr. HESLOP. Our plan—I would expect very surely to develop a 

program of requirements. 

Mr. DENHAM. So we should have had a program of requirements 

prior to this. 

Mr. HESLOP. It is quite apparent that we should have, yes. The 

previous process was very flawed. And our role is to fix that process going forward, so this does not happen again. That is my role. 

Mr. DENHAM. Mr. Kotz, the inflation of the numbers, as detailed 

in your report—breathtaking. The increase in numbers for contractors, interns, temporary workers, coupled with the 400-square-foot 

per person standard used is disturbing, at best. 

What do you believe the needed space—shot out from under 

300,000 square feet, what it originally was, all the way up to 

900,000 square feet in just the course of 1 month—was it some big 

change in Government that we, you know, go through, some new 

operation nationally that would suggest that all of a sudden we 

17 

were going to get a huge number of employees, and we absolutely 

had to have this space? 

Mr. KOTZ. No, I think it was that they looked into Constitution 

Center and saw how beautiful it was, and what a nice space it was, 

and so that’s what happened in that interim period. And they decided only to focus on Constitution Center, as opposed to all other 

options. And the Constitution Center was a larger place, and that 

needed 900,000 square feet. 

Mr. DENHAM. So, in your report, do you see any justification to 

go to a 900,000-square-foot building? 

Mr. KOTZ. No, no. The numbers were wildly inflated. There was 

no basis for it. Even if you assumed, as you indicated, that the SEC 

was going to get all the money, there still wouldn’t have been need 

for 900,000 square feet, no less an additional 500,000 square feet, 

as you indicated, which would be 1.4 million. It was completely fabricated. And we believe it was simply to be able to acquire beautiful space with fancy views, like you indicated on that slide show. 

Mr. DENHAM. How about the current 1.3 million space that they 

currently occupy? Is that 100 percent utilized? 

Mr. KOTZ. No. And, in fact, during that time there were open offices there. There continue to be some open offices. I think it is 

mostly utilized, but there still are open offices in Station Place. 

Mr. DENHAM. So we’ve got 1.3 million in current space with 

availability. Went out to get 300,000 square feet, which inflated to 

900,000 square feet, with an option of 500,000 square feet. Can you 

give me the timeline of that course of decisionmaking? 

Mr. KOTZ. Sure. This is all within the period from June 2010 

through July 2010. There was the briefing in June 2010, where 

there was discussion about 280,000 to 315,000 square feet. By July 

2010 it turned into 900,000 square feet with the option for the additional 500. So it was 1 month. 

Mr. DENHAM. Is that normal? 

Mr. KOTZ. No, no. I mean it—— 

Mr. DENHAM. This is half-a-billion dollars. I mean I would think 

you would need congressional approval to spend a half-a-billion dollars, or certainly you would go through other agencies. 

Probably this would rise to the level of the President, to say, you 

know, ‘‘I realize you are going to cut a lot of different programs this 

year that are very important to the people of this Nation. We are 

thinking about going out and getting enough square footage, and 

spending a half-a-billion dollars. Mr. President, what do you think 

about that?’’ 

I mean the process of going out and getting this type of leased 

space, the sign-off? 

Mr. KOTZ. Yes. I mean the negotiation was done, essentially, over 

a weekend. They got the OK to go forward on Friday. By Wednesday they had signed the deal. The process of coming up with the 

numbers was very, very quick. You know, not scientific, not thorough, you know, no program put forward, you know, no rational 

basis put forward, no approvals outside the SEC. 

Mr. DENHAM. Thank you, Mr. Kotz. My time has expired. Mr. 

Walz? 

Mr. WALZ. Well, thank you, Mr. Chairman and Ranking Member. 

This entire situation is troubling on many layers. I guess the school 

18 

teacher in me—the one good thing about this whole thing is is, Mr. 

Heslop, you have done what I didn’t think was possible. You certainly brought us together in a bipartisan manner for a common 

cause. Because the frustration here is palatable. I associate myself 

with both my colleagues’ remarks. 

I often times sometimes laugh about the names of hearings. This 

one is serious, and I think it was appropriately named, and that 

is very frustrating to me, one, as a watchdog of the taxpayers’ 

money, but two, as I think everyone in this room recognizes, is the 

incredible importance of the SEC, and the job that it does, and the 

importance now more than maybe any time in the last 75 years is 

on trial today, if you will, because of a stupid, possibly illegal, decisionmaking. 

And I again associate, I think, with the chairman on this one is 

I can’t imagine a private business just getting to decide they will 

get around to this when they decide, ‘‘It is OK, we will fix this,’’ 

or whatever. That is not going to happen. They are going to have 

somebody hammering on them. And I am incredibly frustrated by 

that. 

And this whole idea of leasing—and I don’t like to pile on, Mr. 

Heslop, but we, as Members of Congress—I review my leases 

through GSA, and I follow those rules. We go out and look for 

space in Rochester, Minnesota, in Mankato, look for the best space, 

try and get the best dollar for it, negotiate a good deal, and I look 

it over to make sure it is legal. That is my responsibility, in addition to other responsibilities. So there is a frustration. 

But I do think the good news is I am a huge fan of our IG programs, Mr. Kotz, on—and across the board. I spend a lot of time 

in the VA committee, and the inspector general in the VA returns 

about 12 to 1 in terms of what we give them for a budget. For 

every dollar they return 12 back to the taxpayer. Do you happen 

to know, in your Agency, what that number is, or could we get it? 

Mr. KOTZ. Our office’s budget? 

Mr. WALZ. No, what you get on what we give to you. 

Mr. KOTZ. Oh. 

Mr. WALZ. I am going to come to that—— 

Mr. KOTZ. Oh. 

Mr. WALZ [continuing]. On what we get, a return on the dollar 

in terms of stopping fraud, waste, and abuse, both internally and 

in private contractings. In the VA, that is the number they can 

come up with. 

Mr. KOTZ. Yes, I don’t know that we have calculated a specific 

number. I mean in each one of our semi-annual reports we identify 

cost savings. Routinely, those are in the millions. 

Mr. WALZ. You get to count $500 million on this one. That will 

up the odds. 

Mr. KOTZ. Right, right, yes. 

Mr. WALZ. But it—but in all seriousness, I will move to the next 

question on this. 

Yesterday’s number from the Financial Services cut the budget 

for the SEC by 18.7 percent. You are probably going to take your 

share of the cut in that. My concern on this is all of us want to 

see good responsibility, I think, at this time in history. And for the 

importance of responsibility of enforcing new enforcement laws to 

19 

make sure we don’t get a melt-down, it will be tragic to me if we 

are not able to give you the resources. Because as those resources 

go down—how does your office decide how you look at things, how 

you go after things? Because you are limited, I would assume. 

Mr. KOTZ. Right. Well, you know, we get a lot of complaints. And 

where we get complaints—every complaint that comes in, we look 

at it in some way or another. We triage the process to determine 

how much resources we should put to a certain complaint. In this 

case, we got so many complaints about this leasing decision that 

it was very clear it would have to be looked at. 

And then, many folks from that office, the Office of Administrative Services, came to us—many anonymously—with other concerns 

about that. So it was very clear that this one had to be looked at. 

But, you know, we strive to look at whatever we can. We do have 

a small staff, but we are very efficient, and we do produce a lot of 

work, because it is important for the taxpayer that there be a 

watchdog in place. 

Mr. WALZ. In this case, would it be fair to say the system did 

work? We have an agency, we have the IG, the complaints came 

in, they were taken, they were investigated, you brought it to Congress. 

And I will say ‘‘worked,’’ because I get a very strong feeling here, 

Mr. Heslop, this thing will be resolved. I can be pretty certain of 

that. It will be resolved in a satisfactory manner to the taxpayer 

and to the system. 

But would you think the system worked here, so far, at this 

point? 

Mr. KOTZ. Yes, in that manner, certainly. I mean we identified 

the issues, we issued a report. We didn’t pull any punches in that 

report. The Agency has accepted the report. 

Now, the next stage, obviously, is to fix the problem and to engage in disciplinary action, as appropriate. But I do say, as of now, 

the system has worked, yes. 

Mr. WALZ. Would it be possible—and I don’t know if it’s you, 

yourself, Mr. Kotz, or someone in your office—to see if you have 

that data, on return for the dollar, what you are doing? 

I am very concerned, when I make the argument where we do 

have to cut—and the chairman is right about that, there is tough 

decisions to be made—as I said, I am a long-time fan of the IG because of what I think it saves and does what it’s supposed to do 

for the taxpayer. 

Could I get that information? 

Mr. KOTZ. Sure, we would be happy to provide that to you. 

Mr. WALZ. Thank you for that. I yield back, Mr. Chairman. 

Again, thank you for this hearing. 

Mr. DENHAM. Thank you, Mr. Walz. Mr. Heslop, did the SEC 

leasing regulations and policies in July of 2010 require written approval by the chairman or commissioners of the SEC? 

Mr. HESLOP. Not to my knowledge. 

Mr. DENHAM. Not the chairman or the commissioners? A half-abillion dollars, you go out and spend a half-a-billion, commission 

and chairman not needed? 

Mr. HESLOP. To my knowledge, it was a delegated responsibility. 

Mr. DENHAM. What approval process did they require? 

20 

Mr. CAHN. That responsibility, or the delegated responsibility for 

approval of leases, resided with the executive director of the Agency. And I do not know, at the time, what approval underneath him 

was required for him to execute an approval. 

Mr. DENHAM. And what type of expenditures is the executive director authorized to make? 

Mr. CAHN. I don’t know the level of his approval. I don’t know 

whether there is a particular cap. I just know with regard to leasing decisions, that was delegated from the chairman to the executive director at the time of this lease. 

Mr. DENHAM. What is the largest expenditure that has been done 

in the past? 

Mr. CAHN. I don’t know the answer to that, but I would be happy 

to have that information pulled together and provided to the committee. 

Mr. DENHAM. Do you have any idea? Ballpark? 

Mr. CAHN. (No response.) 

Mr. DENHAM. Is this the largest? 

Mr. CAHN. I do not—I just—I do not know, I’m sorry. 

Mr. DENHAM. Have you ever heard of the executive director 

spending $1 billion? 

[No response.] 

Mr. DENHAM. $1 trillion? 

Mr. CAHN. No, no. I do not know how the size—these lease payments compare to the size, for instance, of the lease payments in 

connection with the Station Place headquarters location, which I 

believe is a larger footprint. 

Obviously, the numbers we are talking about are the aggregate 

amount over the lifetime of the lease, as opposed to an annual expenditure. I do not know, with regard to particular line items, what 

is the largest expenditure in an—on an annual basis that the executive director has authority to approve. But I would be happy to 

get that information to you. 

Mr. DENHAM. So are you saying, then, because it is over a term, 

that the SEC would look at this on an annual basis, and spending 

authority may have been less than the half-a-billion? 

Mr. CAHN. No. You were asking about—— 

Mr. DENHAM. You are just saying you have no idea. 

Mr. CAHN. You asked me what the largest expenditure was, 

whether half-a-billion, and it depended, I guess, on how you measured it, whether you measured it on what the annual impact was, 

or over the lifetime of the commitment. And I was just saying that 

I didn’t know the answer to the question of what the largest one 

was that the executive director had approved, but we would be 

happy to get that information to you. 

Mr. DENHAM. And approval process that is currently required? 

Mr. CAHN. I believe right now, with regard to leases, that authority resides with Mr. Heslop. 

Mr. DENHAM. And prior to this? 

Mr. CAHN. Prior to the immediate—immediacy, I believe it resided with the executive director. Those authorities have been 

transferred to Mr. Heslop, so he now has the authority—all leases 

need to be approved by him. 

21 

Mr. DENHAM. So Mr. Heslop has the authority to commit our 

Federal Government to a half-a-billion dollars with no other authority at all? 

Mr. HESLOP. Sir, as I stated, we are conducting, in process, as 

we speak, an independent—— 

Mr. DENHAM. Oh, I understand that there is a process that you 

are—— 

Mr. HESLOP [continuing]. Analysis of all of our—— 

Mr. DENHAM [continuing]. You are looking at going after—— 

Mr. HESLOP [continuing]. Of our policies—— 

Mr. DENHAM [continuing]. But I just want to know right now, 

today, do you have the authority to go out and spend a half-a-billion dollars? 

Mr. HESLOP. I don’t believe that I do, sir. But the policy that we 

typically follow is we have an annual budgeting process. That 

budgeting process is approved by our financial management oversight committee. 

So, first of all, we are limited within the confines of the SEC’s 

budget on an annual basis. And then, expenditures from within 

that are taken through a governance process of our financial management oversight committee. And as a rational man, sir, I would 

not take a decision of half-a-billion dollars independently. I would 

run it through the committee, and run it through the chairman. 

Mr. DENHAM. And, as COO, you oversaw annual budgeting processes in the past. So this isn’t something—an annual budget process is not something new you guys have just implemented in the 

last few weeks, is it? 

Mr. HESLOP. No, sir. 

Mr. DENHAM. OK. So you oversaw that as COO prior to this. 

Mr. HESLOP. I did not last year, sir. I have just assumed these 

responsibilities within the last 7 weeks. 

Mr. DENHAM. So the executive director went over the annual 

budget process. 

Mr. HESLOP. The executive director previous to me was on top of 

the annual budgeting process, yes. 

Mr. DENHAM. And, as COO, do you not look at the budget? 

Mr. HESLOP. As COO, I looked at the budget as it related to 

those functions underneath my umbrella of responsibility. And at 

that time that did not include budget management. It did not include the Office of Administrative Services. 

Mr. DENHAM. I just want to, for the record—COO does stand for 

chief operating officer, correct? 

Mr. HESLOP. Sir, the Commission had a bifurcated approach to 

oversight of the back office functions in the past. It is a—it was a 

recommendation recently we had—as you know, Dodd-Frank requested an independent assessment of the Agency. The DoddFrank study recommended that those functions be consolidated 

under one head. It was consolidated under me, approximately 7 

weeks ago. 

Mr. DENHAM. OK. So, under your testimony, prior to your new 

duties you were not authorized to look at the annual budget. 

Mr. HESLOP. I was certainly authorized to look at the annual 

budget—— 

Mr. DENHAM. You just chose not to. 

22 

Mr. HESLOP. I looked at it with respect to those functions that 

were under my tutelage: Office of Information Technology, Office of 

Freedom of Information Act, Privacy, and Records Management. 

Mr. DENHAM. So was a half-a-billion dollars under last year’s annual budget? 

Mr. HESLOP. Again, sir, I don’t know. I did not look at that component of it. 

Mr. DENHAM. You missed that piece of it. How big is the annual 

budget? 

Mr. HESLOP. I think we are at approximately $1.1 billion. 

Mr. DENHAM. I would at least, as CEO, expect that you would— 

even if you chose not to look at the entire annual budget, that you 

at least looked at a top line. Would you not? 

Mr. HESLOP. I reviewed the budget, sir. Yes, sir. 

Mr. DENHAM. OK. So you said $1.1 billion is the annual budget? 

Mr. HESLOP. Approximately, yes. 

Mr. DENHAM. And we went out and spent a half-a-billion dollars. 

That did not even take a jump on the radar screen to say, ‘‘Wait 

a minute, this is—I must need to look into the budget further, because this is a big jump in what our annual budget authorizes.’’ 

Mr. HESLOP. Again, sir, I was not privy to any real estate decisions, this one in particular. 

Mr. DENHAM. I just want to understand. You know, as CEO your 

decisionmaking process—obviously, if you have got to at least look 

at the top line—maybe you weren’t inquisitive enough to look at 

the entire budget. 

But if you are at least looking at the top line budget numbers, and your budget went from $1.1 billion to $1.6 billion, that somewhere there must be a big issue there. If you are looking across the 

Nation and we are making cuts, the President has made a decision 

that we are going to cut spending, or at least, at the time, freeze 

spending, and you, as chief operating officer, saw the top line budget, $1.1 billion increasing to a large amount, did you not think, as 

chief operating officer, that maybe you ought to look deeper into 

the budget and figure out where the discrepancy is? 

Mr. CAHN. If I may? 

Mr. DENHAM. Mr. Cahn, if he doesn’t understand the question, 

maybe you can answer for him. 

Mr. CAHN. Let me try, Chairman Denham. I mean I think that 

it is a very important question. I think the issue focuses on the 

Antideficiency Act issue, because the question, as I understand it 

presented by the Antideficiency Act, the issue is whether, as an 

agency with independent leasing authority, and authority to enter 

into multiyear leases, whether we are required, consistent with the 

Antideficiency Act, to obligate funds for the entire amount of the 

contract in the first year of the contract, or whether, consistent 

with the Antideficiency Act, we are permitted to obligate funds only 

on an annual basis for what amounts are due. 

Certainly agencies, such as GSA, it is clear that they may obligate their long-term leases on an annual basis. We have understood since 1990, when we received independent leasing authority, 

that we could, consistent with the Antideficiency Act, obligate those 

funds on an annual basis, and that is something that hasn’t been 

questioned by OMB or GAO in the course of their audits of us. 

23 

But, having said that, that is the question that the inspector general has legitimately raised in connection with his investigative report. And that is why we have submitted that question to the 

comptroller general. Because if, consistent with our interpretation 

of the Antideficiency Act, it is permissible to present in our budget 

our long-term leases on an annual basis, I think that answers your 

question. 

Obviously, if the determination comes back—— 

Mr. DENHAM. It doesn’t answer my question. It doesn’t even 

scratch the surface. I am out of time right now. 

But I am just—I am amazed that chief operating officer and his 

legal counsel, you know, whether it is over the course of a 10-year 

obligation—if you are at $1.1 billion and it jumps to $1.2 billion, 

or 1.1 to 1.15, somebody needs to be asking some questions. And 

if we don’t have the right people in charge to be able to ask those 

questions, then we need to make some changes. 

Ms. Norton? 

Ms. NORTON. Thank you, Mr. Chairman. One of the problems we 

are experiencing here you need to really take into account. We see 

no energy for reform coming from these witnesses. We understand 

what the IG said. 

That is befuddling to me. I don’t know if you understand the gift 

you are giving to those who oppose Dodd-Frank, while many of us 

are up here trying to remind people that the way we got into this 

hole was, if you will excuse me, some of the problems that were 

raised at SEC and the problems that Dodd-Frank is meant to cure. 

So, what—your failure to even want to remove an employee who 

has been named as the source of the abuse is like going to those 

who oppose Dodd-Frank and said, ‘‘Here is something further for 

you.’’ It is befuddling to me. 

And, Mr. Heslop, your testimony—you are big and bold. ‘‘Although the SEC is no longer pursuing space in Constitution Center, the Agency continues to believe that significant staff will be required to carry out the new responsibilities’’—good luck, good luck 

getting it from this Congress—‘‘assigned to the Agency under DoddFrank. To this end, the SEC will continue to assess its space 

needs’’—‘‘Congress, we are going to continue to look at our space 

needs’’—‘‘in the context of its current budget, and the overall resources available to the Agency.’’ 

I looked through your testimony. I didn’t see anything in the testimony that says—and I will tell you what, Mr. Chairman, any resources we get will be devoted to the regional offices the way the 

chairwoman said it should, in the first place. Instead, you refer increasingly in your testimony—I have pulled it out to new responsibilities, need for space because you’ve got new responsibilities, 

continuing resolution didn’t give you all the money you needed to 

carry out these responsibilities. 

Nowhere do you indicate that the chair said you were to carry 

out those responsibilities in the regional office, so you probably 

won’t need any more space in the District of Columbia. Isn’t that 

the case? 

Mr. HESLOP. Ma’am, as I mentioned earlier, the BCG study that 

was done as a result of the Dodd-Frank Reform Act required us to 

take a look—basically, do an independent assessment of the SEC. 

24 

And as a result of that study, one of the recommendations was to 

look at our regional strategy. And that is exactly what we are 

doing. That analysis—— 

Ms. NORTON. You don’t mention that in your testimony. You 

don’t mention in your testimony that any resources that you are 

lucky enough to get would go certainly not to a Washington, DC— 

now, this is my district, I always love to have people lease in my 

district, but I do have an oath to be a Member of Congress first, 

and responsible to taxpayers—you don’t even say that no more 

space would be sought in the District of Columbia. Can you at least 

say that this morning? 

Mr. HESLOP. It will be totally dependent, ma’am, on the level of 

resourcing that we get to execute the new responsibilities that we 

have been given under the Dodd-Frank Act. 

Ms. NORTON. All right, Mr.—what you are saying is on the record 

and under oath. 

Mr. HESLOP. Yes, ma’am. 

Ms. NORTON. And that is going to be repeated back to you time 

and time again. 

Mr. HESLOP. It is—— 

Ms. NORTON. Not only with respect to this issue, but with respect 

to your very important mission. 

Now, I am—with—and when I say Congress would like to see, 

whenever we see a problem, that there is somebody who is gungho on fixing the problem. I don’t see anything like that from anybody, except the IG, who can’t fix it, because that’s not his job. 

I asked staff to pull up what leases were coming up. And that 

is one of the reasons why I think we have to, Mr. Chairman, do 

a bill. Because they have got some leases coming up in the very 

near term. And let’s look at Atlanta, where they are 383 feet above 

the standard level of other Government employees. That is coming 

up—well, that is already done. 

Would you—I want to—perhaps you don’t have off the top of your 

head. I would like to know whether you—would you get to the 

chairman on whether or not you have renewed the Atlanta lease, 

which ran out on June 19, 2011, for 114 people for the same 

amount of space? 

But let’s move on. On 2012, January, Chicago. It is rented at— 

it is leased at 419 per person. At—and that is coming up in 2012. 

In Los Angeles you have got 336 per person. Understand we are 

talking about 200 square feet per person, and some law firms in 

this town are going down to 175 square feet per person, because 

they don’t want to spend all their money, what they have left, on 

leasing. In Miami, 449 square feet per person. Your total regional 

offices are at 492, on the average, per square—square feet per person. 

Now, let me ask this, in case—if you are left with leasing authority, would you agree today to draw down the utilization rate to the 

standard utilization rate of 200 square feet, or 230 square feet, so 

as to reduce your utilization rate in any new contracts you would 

be fortunate enough to make? 

Mr. HESLOP. Yes, ma’am, we would certainly consider that figure. 

25 

Ms. NORTON. Seems to me that you will have some difficulty 

doing that if you are leasing—if you are renewing leases. But that 

is something that any competent real estate operator would be 

doing now, he would be renegotiating every single lease you have. 

I think the chairman asked about are there other buildings with 

this kind of lease. I just want to record that you have made the 

top 10 of leased space ever in the District of Columbia. 

Could I ask the IG whether you think, in light of your report, 

that Congress would be well advised to revoke the leasing authority of the SEC? 

Mr. KOTZ. Yes, obviously it is something that requires serious 

consideration. I would say this. You know, looking at the way the 

leasing practices have been run to date, I would say there is no 

question that the leasing authority should be taken away. 

If significant changes are made, if there is a complete cleaned 

house at the Office of Administrative Services, if everything is done 

differently going forward, then I think there would be a possibility 

to allow that to go forward. But certainly, from what we saw, I 

don’t think that the SEC has done a capable job of exercising that 

leasing authority. 

I would think that there would have to be a drastic and significant change in the way—— 

Ms. NORTON. Well, let me—all right. Let’s consider this drastic 

change. 

Mr. Heslop, in the present staff, who has had any background or 

experience in real estate transactions of the kind, for example, that 

GSA requires in the ordinary course of doing business? And what 

has that experience been? 

Mr. HESLOP. There are a number of current staff that have actually had GSA experience. We have a lead realty specialist with 20 

years of GSA realty contracting and policy experience, and has 

been at the SEC 2 years. We have a lead realty specialist with 

nearly 10 years of GSA realty contracting and policy experience. 

We have a realty specialist with 11 years of GSA realty contracting 

experience, and—— 

Ms. NORTON. Mr. Heslop, the IG—read the IG’s report. The IG 

said that those with any real estate experience, those are fairly 

minor—those with fairly minor roles, even at GSA, were routinely 

ignored. 

Does Sharon Sheehan have any significant real estate experience? And she is the woman in charge, and the person the IG finds 

was deeply involved in these abuses. Has she any real estate experience? 

Mr. HESLOP. I am not aware of what her professional history and 

how deep it is—— 

Ms. NORTON. Would you see to it that the chairman receives her 

resume? 

Mr. HESLOP. Sure. 

Ms. NORTON. Within the next 10 days. Let me ask about the status of Constitution Center. I have toured Constitution Center. It is 

an extraordinary facility. This is a facility that was apparently 

built for—as a secure facility, recognizing that, after 9/11, the Government would be looking for secure facilities for certain kinds of 

agencies. Is the SEC classified as a secure facility? 

26 

[No response.] 

Ms. NORTON. Are you like the Defense Department? Are you like 

the Department of Homeland Security? 

Mr. HESLOP. I am not aware of the classification system that—— 

Ms. NORTON. What kinds of employees would have or are now in 

Constitution Center from the SEC? What are their duties? 

Mr. HESLOP. I am not aware of any employees in Constitution 

Center at the moment, ma’am. 

Ms. NORTON. All of the employees are out? 

Mr. HESLOP. Yes, ma’am. 

Ms. NORTON. What kinds of employees were housed there before 

you got GSA to help you try to find others for this space? 

Mr. CAHN. Congresswoman Norton, I don’t believe any SEC employees have been at Constitution Center at any time. 

Ms. NORTON. So nobody ever made it into Constitution Center? 

Mr. CAHN. That is correct. 

Mr. DENHAM. And I would like to follow up on the same round 

of questioning. What was the intent? Is there a specific reason why 

this building was picked? Does the SEC have specific requirements 

that would require a secure building? 

Mr. HESLOP. Not to my knowledge. The way the Department of 

Defense—you know, a specific type that the Department of Defense 

organization might have. Based on my two decades of experience 

in the military, I don’t believe the SEC has the kinds of requirements that you might find with several of the DOD-type activities. 

Mr. DENHAM. Let me switch the line of questioning back again, 

Mr. Heslop. Last week you and Mr. Cahn, you met with my staff, 

subcommittee staff. When we requested the SEC provide the subcommittee with an unredacted copy of the IG report, committee 

staff was informed ‘‘a formal written request should be made so 

that the SEC commissioners could review the request and approve 

it.’’ 

What types of administrative decisions do the commissioners review and approve, and why are leasing actions, especially one binding the Federal Government to a half-a-billion dollars, not included 

among them? 

Mr. CAHN. Chairman Denham, as I mentioned, the—well, as you 

know, we have produced the unredacted report and exhibits to the 

committee in connection—— 

Mr. DENHAM. Well, I understand. And my concern is, for a simple report, before you come before a congressional committee to testify, you required a written notification to go to the commissioners, 

so the commissioners could vote on whether or not you just were 

going to provide a simple piece of paper that should be open to the 

public. 

Now, if you have got to go to the commission to ask for approval 

and a vote to give Congress some information, but you don’t have 

to go to the commission for a half-a-billion dollars, I would assume 

there is something wrong with the approval process there, or your 

priorities are deeply skewed. 

Mr. CAHN. I appreciate that, Chairman. And I think certainly, 

going forward, we need to look at whether we need a process that 

involves going to the commission, as opposed to the delegated authority that we have now. The delegation to the executive director 

27 

is in accordance with the manner in which certain administrative 

functions, as opposed to adjudicative and other functions, are delegated within the commission. 

But I think you obviously raise a very significant point, and one 

that we are currently evaluating right now. 

Mr. DENHAM. You are evaluating a lot of things with no answers. 

You know, we had invited Commissioner Shapiro to be here to 

testify today. I understand that she is wrapping up her testimony 

in Financial Services. Mr. Manley, I would ask you to go over to 

Financial Services, and if she wraps up her testimony, maybe she 

can come here and provide some answers and some greater detail. 

I know you are new, Mr. Heslop, with some new duties, but some 

of these questions are pretty basic questions. If somebody in my 

company answered these questions in the manner that you guys 

are, there would be a lot of people fired. I mean this is just amazing, that half-a-billion dollars—you want us to go back to the commission just in asking for the unredacted copy of the IG report and 

take a vote by the commissioners, but the commission doesn’t require you to go to them with a half-a-billion dollars? And, Mr. 

Heslop, you oversee the annual budget, but you don’t notice when 

a large expenditure like this is being proposed? That’s amazing. 

Ms. Clancy, in your testimony you provide an overview of how 

GSA normally reviews and approves leases. During GSA’s process, 

does GSA keep track of necessary approvals orally, or do you get 

approvals in written documentation? 

Ms. CLANCY. Our process is fairly extensive, and we actually 

have a formal written process that tracks those, both electronically 

as well as through a paper process which gets input later on into 

our electronic system. So it’s two—at two levels. 

Mr. DENHAM. Mr. Heslop, in your testimony you mentioned that 

the SEC has worked with the landlord of Constitution Center to 

find other Federal tenants to release ‘‘part of our obligation under 

the lease.’’ You also indicate the SEC is working with GSA on filling the remaining space. Can we assume, then, that the SEC has 

concluded that the lease obligation is a valid one? 

Mr. HESLOP. [No response.] 

Mr. DENHAM. Are you obligated to the lease? 

Mr. HESLOP. Yes. Yes, it is—— 

Mr. DENHAM. Somebody signed it. 

Mr. HESLOP. It is a valid lease. 

Mr. DENHAM. OK. So, the Federal Government is on the hook for 

this long-term lease. Where are we, as far as getting out of that 

obligation, or releasing that to others? 

Mr. CAHN. Right, we are—we have been working closely and we 

are working closely with GSA and other entities, and we are hopeful that we can do that. And I would defer to the GSA to be able 

to respond more to the—— 

Mr. DENHAM. You are hopeful? Where are we in the process? 

Mr. CAHN. We have been in discussions with them, and we 

are—— 

Mr. DENHAM. When did you realize this was a problem? Was it 

before the IG report came out, or—— 

Mr. CAHN. We have been in discussions with GSA, I think, going 

back to the fall, yes. So we have been—— 

28 

Mr. DENHAM. OK. So you have been working on it since the fall. 

Where are we? 

Mr. CAHN. We are still working with them. I think it is a matter 

of them—— 

Mr. DENHAM. You are working with them. That is the best answer you can give us today? How far are you working with them? 

Do you have any—are there any proposals out there? Are there any 

signed agreements? Do we have anybody under lease today? 

Mr. CAHN. With regard to the remaining space, there isn’t anyone yet that is under obligation to take that remaining space. 

Mr. DENHAM. So we were able, over a weekend, to approve a 

half-a-billion dollars of taxpayers’ money without any authority 

from the commission, from Congress, from the President. We were 

able to, over a weekend, go out and secure half-a-billion dollars 

worth of space, and over the course of a year we have not been able 

to get out of that lease or find anybody else who was willing to 

lease that property. 

Mr. CAHN. I think, as Mr. Heslop’s testimony mentioned, we 

were able to identify two tenants to take the majority of the space. 

There is still a balance, you are correct, and—— 

Mr. DENHAM. You have identified, or they are under new contract? 

Mr. CAHN. They are under new contract for the—for most of the 

space. There is about 340,000 square feet that remains that we are 

working with GSA on. 

Mr. DENHAM. And who are those new tenants? 

Mr. CAHN. FHFA and OCC. 

Mr. DENHAM. And GSA? Have they already—each of those agencies already gone out for proposal on new space? 

Ms. CLANCY. I believe—we were not involved in either one of 

those leases for OCC or FHFA. I believe that both of those agencies 

have their own leasing authority. And so those leases, to my understanding, were negotiated directly with the landlord. 

Mr. DENHAM. The landlord being? 

Ms. CLANCY. The landlord at the Constitution Center. 

Mr. DENHAM. But had to renegotiate. Now we are subleasing this 

space. SEC is subleasing this space to two other Government agencies that also have their own leasing authority to help come in and 

fix the problem. 

Mr. CAHN. My understanding is that we released the space, so 

they are in direct—they have a direct lease agreement with the 

landlord. So we are not subleasing that space to FHFA and OCC. 

Mr. DENHAM. But SEC—— 

Mr. CAHN. I can confirm that. 

Mr. DENHAM [continuing]. Is still on the hook for the rest of the 

lease. 

Mr. CAHN. Yes, sir. 

Mr. DENHAM. Thank you. Mr. Walz? 

Mr. WALZ. Thank you, Mr. Chairman. Mr. Heslop, I want to get 

back at something just a little bit here, trying to understand this 

on how something like this happens. It is going to be—the details 

are going to come out, as I said, and we will get it all right. 

You come to this job with private sector experience. I want to go 

back to where—you were at Capital One, is that correct? 

29 

Mr. HESLOP. That is correct. 

Mr. WALZ. And Capital One is the thirteenth largest financial institution in the United States? 

Mr. HESLOP. I believe that is correct, sir. 

Mr. WALZ. OK. And you were there about 12 years? 

Mr. HESLOP. Yes, sir. 

Mr. WALZ. So you got a chance to understand their internal culture and how things work and how they would go about leasing, 

expanding, and those decisions? 

Mr. HESLOP. I was very familiar with the risk management internal controls component during my tenure at Capital One. I did 

have some small degree of leasing interface, as well. It was not 

huge. 

Mr. WALZ. For the critics that are always there—and in this case 

it looks like rightfully so—that Government can’t get things right, 

would Capital One have made a mistake like this? 

Mr. HESLOP. I can’t speculate as to whether they would have 

made one. 

Mr. WALZ. Would there have been safeguards, culturally, that 

would have prevented it from happening, in your opinion? 

Mr. HESLOP. It is actually an interesting question. I believe when 

I first got there, there was not a strong culture of internal controls 

and process and rigorous discipline. One of my roles, while I was 

there during my tenure, was to implement, on a global basis, a 

very strong disciplined internal control program, which, over time, 

you know, was instituted into the culture, and became very successful. 

So, I would say the answer to your question would be early on 

it could well have happened. Later on, toward the end of my tenure, I think we had a rigorous control environment in place. 

Mr. WALZ. And I know that the—and it comes with the nature 

of leadership—you are going to take a lot of responsibility for 

things, one way or another, and that is the way it should work, to 

a certain degree. 

My questions are that I often times see inside of Government 

agencies is sometimes a career staff there, maybe working at cross 

purposes to the person who is put in into the leadership position. 

Do you feel there is a problem at SEC, in terms of management 

and your ability to be able to dictate, or at least oversee, if that’s 

a better term? 

Mr. HESLOP. I would not characterize it as a problem. I would 

say that there is an opportunity to change the culture, as it relates 

to, you know, a more disciplined approach to controls, in general. 

I think that with the IG we have been making good strides in that 

direction, and we have evidence of that in some specific areas over 

the course of the last year. We have more to go. The OAS organization is one of those, which is now under my tutelage, and I very 

much intend to bring that organization under control as well, with 

specific—specifically focused around the leasing of facility space. 

Mr. WALZ. Do you share the chairman’s frustration on—that it 

is not moving faster? I understand there is a relative amount of 

time—the one thing I think I see, and I think the public gets a 

frustration with—and I think it’s a valid concern—even large bureaucratic—which I think you could argue Capital One is big 

30 

enough to have some of that—they seem to be more nimble at 

times on being able to do that. 

Are we still hampered with not moving at the pace of the way 

the world moves now inside our agencies? Because I don’t know 

how long this takes. I am not—I don’t have a best practices that 

says how long it should take GSA and everyone to work on this. 

My intuitive sense tells me, like the chairman is saying, it should 

move a hell of a lot faster. 

And I want to know. How do we determine that? Or how do we 

make sure that is happening? And that is something where you 

and leadership could implement, I would think. 

Mr. HESLOP. I think I would definitely agree with you, that I 

would like to see it move faster. There are a number of constraints 

that one faces in an organization like this that you don’t face necessarily on the private sector that impede progress along a more 

rapid glide path. We are trying to work, you know, as effectively 

and efficiently as possible, tackle those obstacles, and move the ball 

down the path. 

Mr. WALZ. Well, I think that is our charge right now, that those 

of us—and, as I said, I am going to be fighting for a proper amount 

of funding, making sure it is used right, making sure the IG has 

their ability, making sure you have the ability to oversee what I 

think was reckless disregard for the public welfare and the economy that collapsed this economy. But right now I think the ranking 

member is right. We have given them—not only teed it up, we have 

given them a damn beach ball to hit over center field that ‘‘These 

guys are reckless, can’t do anything right, how dare they oversee 

us in the private sector?’’ 

So, I am looking for you or someone to stand up, the director, 

whoever it is, to stand up and say, ‘‘We are going to implement 

these things, we are going to move faster, we are going to take 

these IG recommendations from some experts, we are going to look 

at them and see if we can implement it,’’ and then come back to 

us if this is the case. 

And I know that there is no one, other than the ranking member, 

no one in Congress, that cares more about due process, but her 

frustration with employees—we don’t—we are not just going to jack 

somebody, move them out, and not give them due process or whatever. But I think if someone has made such a gross error, there has 

got to be ability to, if you will, move her to the corner and sharpen 

pencils until we figure this out. That should be able to happen. 

Is that true? I mean don’t you think—come to us if we are hampering you with some of those. Come to us and say, ‘‘We need the 

ability to have more flexibility to move some of this stuff.’’ 

So I just—I offer that to you. I want—as I said, you are going 

to take your lumps on this. You are experienced, you have been in 

the private sector and done this. But I think what the chairman 

is looking for, too, is, yes, a fix of this initial problem. Certainly 

what I am looking for is what we are going to do, moving forward. 

And this economic difficulties we are having presents golden opportunities to streamline our operations and make it work better. 

And so, with that, I yield back. 

Mr. DENHAM. Thank you, Mr. Walz. I have just been informed 

by Mr. Manley that the commissioner is still testifying, she is going 

31 

to be unable to come back after our votes. We have been called to 

votes now. 

So, I made the determination we are going to be having a second 

hearing. There are just too many unanswered questions here. But 

in this next hearing I will expect to know who has been fired during this whole process. If we can all agree that there has been some 

wrongdoing done here, which—I would at least hope that we could 

agree to that—I would expect to see who is being held accountable 

on this. 

I also want to know the budget oversight process, because this 

seems like a gross abuse of taxpayer dollars. 

And I also know that the Agency would not make available Ms. 

Sheehan to testify. And before we close the hearing, I have got a 

couple of documents that we are going to show. But I will just inform this panel, as well as the SEC, that this committee does plan 

on using its subpoena authority. We will have people here, and we 

will demand answers for the taxpayers. 

With that, I know that Ms. Norton is on a tough time schedule, 

so I would like to recognize her for a brief statement. 

Ms. NORTON. I thank you, Mr. Chairman, for your indulgence. 

What I regret is that you have infected your important mission 

here, and we really don’t need that up here. You’ve got to separate 

out these two missions, and you’ve got to do it very quickly. 

I want to just clarify the IG’s statement. He had said, well, if 

they had—you know, perhaps they could carry on such activities if, 

you know, they changed everything. Let me ask you whether—two 

things, whether they could carry it on with the same person in 

charge, and whether you think that, in light of their core mission, 

they would be better off devoting most of their time or all of their 

time to their core mission. 

Mr. KOTZ. Certainly with respect to the first question, no. They 

would need to have new people in charge. I think if the same people were in place, they wouldn’t be able to carry on in an appropriate way. 

In terms of their overall mission, I think that is a very valid 

point, that obviously, what the SEC is trying to do is enforcement, 

other matters related to the financial system. And certainly, time 

spent dealing with these issues is not productive to their mission. 

You know, in terms of how that would come out, that is really 

up to Congress to decide. 

Ms. NORTON. Thank you very much. Those were definitive 

enough responses. 

Mr. DENHAM. Thank you, Ms. Norton. Mr. Kotz, your investigation found that the dates on the signature page of the justification 

for sole-source procurement was misleading, to say the least. 

Put the slides up here. 

[Slide.] 

Mr. DENHAM. On the screen is a copy of the signature page. Can 

you explain what the issues are, and why they are significant? 

Mr. KOTZ. Sure. If you can see on the signature page, the signatures are dated August 2nd. However, the document was not finalized on August 2nd. It was signed, and then revised substantially. 

It was not finalized until September 2nd. And, in fact, one of the 

32 

signatures that was written, it was signed on August 31st, but they 

wrote in ‘‘August 27th.’’ 

But then, when they saw that the other signatures were August 

2nd, they whited out the 7 so it would appear like it’s August 2nd. 

And you can see there is a space. You can see there is a space 

under that second signature from the bottom, where it is pretty 

clear that there was a 7 or another number there, and that was 

whited out to make it appear that they were all signed on the same 

day. 

In fact, the document was not finalized until a month later. 

Mr. DENHAM. Mr. Heslop, have you seen these documents before? 

Mr. HESLOP. I have. 

Mr. DENHAM. Can you at least recognize that there is an issue 

here? 

Mr. HESLOP. Absolutely. We do not condone back-dating of documents. We are managing the disciplinary action process aggressively, and we will take appropriate action, upon completion of the 

recommendations to me. 

Mr. DENHAM. What type of recommendations are you waiting 

for? 

Mr. HESLOP. I am waiting for the general counsel and the Office 

of Human Resources to provide me recommendations as to appropriate disciplinary action with respect to each of the individuals 

named. 

[Pause.] 

Mr. DENHAM. You know, I am not somebody who is normally at 

a loss for words. But I got to tell you, this is amazing. It is a complete gross abuse of taxpayer dollars. 

Mr. Heslop, I am—quite frankly, I am amazed at your testimony 

today. You are the COO of a very large agency with a very large 

budget, huge responsibilities. I would assume you are a pretty 

bright individual to be able to sit in this spot. 

I am—I will look forward to our next hearing, and I will expect 

some answers. We will give the SEC plenty of notice, we will give 

you plenty of time. But I will expect everybody that we send an invitation to to not only respond to that invitation and make sure 

their schedules are available, but we will subpoena them. We will 

bring them in. But we expect accountability. And the answers that 

we have received today are just completely unsatisfactory. We have 

votes taking place on the floor right now. 

I would like to thank each of our witnesses for their testimony, 

or lack thereof. We will be following up with questions for the 

record. And I would ask that you provide your responses in a timely manner. 

I 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 additional comments and information submitted by Members or witnesses to be included in the record of today’s hearing. 

[No response.] 

Mr. DENHAM. Without objection, so ordered. If no other Members 

have anything to add, this subcommittee stands adjourned. 

[Whereupon, at 11:51 a.m., the subcommittee was adjourned.] 

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