A subsidiary of McKinsey & Co. was the mechanism by which executives could financially benefit from confidential information they received as consultants on PR’s debt.
The Securities and Exchange Commission (SEC) fined a subsidiary of McKinsey & Co., the main consultant of the Board of Fiscal Oversight (JSF), by $ 18 million for illicit exploitation of information, including in the case of the bankruptcy of Puerto Rico.
Without accepting responsibility, the company MIO Partners Inc. paid the amount of the fine, the SEC reported today in a statement. The fine is for $ 18 million, McKinsey has collected $ 150 million for his advice to the Board in bankruptcy and MIO had $ 31 billion in assets as of December 2020.
MIO’s sole business is offering investment options to McKinsey executives and former executives. But the SEC found that, in that exercise, there is no mechanism to prevent and prevent the privileged information that executives obtained in the consulting business from different types of clients from using it to take actions through MIO that would maximize their investments. The vice versa also applied, that the investment decisions made through MIO influenced the consulting they gave to clients.
The SEC’s scope of investigation covers 2015 to 2020 and the agency highlighted several cases of abuse of its positions, including two involving Puerto Rico.
“[E]n January and February 2017, MIO had investments in Puerto Rico bonds at the same time that McKinsey provided debt restructuring consulting (to the Board), the entity in charge of spearheading the financial recovery of Puerto Rico. During this time period, the Investment Committee (of MIO), which included active McKinsey partners with access to confidential information on McKinsey clients, had the power, (through the Investment Committee), to oversee investments. direct from MIO, including the sale of nearly $ 1 million in Puerto Rico bonds. Furthermore, in addition to MIO’s direct investments in Puerto Rico, the company also had investments in Puerto Rico’s debt through its externally managed accounts and other funds managed by third parties, at least until June 2017, “it details. the order of the SEC This conflict had also been highlighted by the Center for Investigative Journalism.
“[E]Between October 2015 and June 2017, MIO funds managed by third parties, including certain externally managed accounts, bought and sold investment instruments from Alpha Natural Resources, Inc., SunEdison, Inc. and the Government of Puerto Rico. At the time of these transactions, certain members of the Investment Committee (of MIO) had access to confidential information of these issuers, “he adds.
Explaining what the illegality of McKinsey’s conduct through MIO consisted of, the SEC explained that “allowing active McKinsey partners, individuals with access to confidential information of issuers in which MIO funds were invested, to supervise or monitor the MIO’s investment decisions presented a continuing risk of misuse of (McKinsey’s) confidential client information. “
The type of information that they had access to, and that presented an advantage to them for investment decisions, included financial results, preparation of bankruptcy filings, consolidations and acquisitions, programming of product development and financing efforts, and changes. significant in management.
For his consulting with the Board, McKinsey charges a flat fee that his most recent contract, effective through next year, places at $ 198,750 per month. In the contract, McKinsey represents the Board that MIO does not currently pursue any investment strategy related to Puerto Rico’s debt and undertakes to notify the Board of any “direct connection” of MIO with the parties of interest in the case. , which are all the instrumentalities of the Government of Puerto Rico and the other parties and creditors involved in the bankruptcy process. These are hundreds of entities and individuals.
This is not the first regulatory action the United States Government has taken with McKinsey. In July 2019, an inspector general report established deficiencies in the firm’s standard contract with the federal government that could cost the United States Treasury $ 69 million.
As recent as in the Debt Adjustment Plan confirmation hearings that continue before Judge Laura Taylor Swain, McKinsey’s work was called into question when, as part of an interrogation, one of his executives admitted that they issued certifications using data that the Board provided them, but that they did not independently corroborate or certify.
To view the SEC order, click here.
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