The Securities and Exchange Commission gave up its leasing authority yesterday and could face a Justice Department probe in light of a $550 million leasing scandal.

At a House Transportation and Infrastructure subcommittee meeting yesterday, SEC Chairman Mary Schapiro ceded the agency’s leasing authority and admitted it had made a “terrible mistake” when it put taxpayers on the hook for a half-billion dollar lease for office space it didn’t need.

In July 2010, the SEC leased a 900,000-square-foot office complex in anticipation of the Dodd-Frank law, which gave the agency new authority over hedge funds, and which the agency expected would lead to a doubling of its budget and about 1,000 new staff members.

Only three months later, the agency determined it didn’t need quite that much leg room after all. It terminated its lease but is still responsible for 300,000 square feet of office space. It is now hoping to sublease the space.

In May, a report by the inspector general of the SEC revealed severe problems with how the lease decision was made. The report found the agency grossly overestimated the need for additional office space and approved the lease — without a competitive bidding process — only five days after it was approved by the SEC chairman. The report also found that SEC employees backdated documents justifying the lease.

“We found that OAS grossly overestimated the amount of space needed at SEC Headquarters for the SEC’s projected expansion by more than 300 percent and used these groundless and unsupportable figures to justify the SEC committing to an expenditure of $556,811 ,589 over 10 years,” the report read.

The inspector general has referred the issue to the Justice Department for review. (White House offers waste panel to voters)

At the hearing, Schapiro was contrite about the “significant flaws” in the SEC’s leasing process.

“The only appropriate response by the SEC is to take all necessary steps to resolve the remaining space issues, to correct the obvious deficiencies in our leasing processes, to ensure accountability for the events surrounding this lease, and to work with the General Services Administration with regard to future space needs,” Schapiro said.

Republican Rep. Jeff Denham of California, chairman of the subcommittee, blasted the SEC for its lack of due diligence and oversight.

“It is inconceivable that the SEC bound the taxpayer to more than a half a billion dollars based on ‘back of the envelope’ calculations that were inflated and just simply wrong,” Denham said in a press release. “And, it is even more disturbing that such a lease was signed without any formal internal written approval, no OMB approval and no Congressional approval. On top of that, the SEC proceeded with a sole-source contract, ‘negotiated’ over the course of just days, based on a justification document that was backdated and altered.”

Denham introduced legislation in May that would strip the SEC and certain other federal agencies of their independent leasing ability.

The Justice Department declined to comment.