McKinsey Investment Fund fined $18 million by SEC for compliance violation

The U.S. Securities and Exchange Commission fined $18 million for an insider fund that invested the assets of McKinsey’s partners, alleging that the organization had inadequate controls to prevent them. misuse of inside information they have accessed through their consulting work.

The affiliate, MIO Partners, has invested hundreds of millions of dollars in companies McKinsey is advising, the SEC said. Some McKinsey partners who oversee the company’s investments “also have access to material non-public information as a result of their McKinsey consulting work,” according to the regulator.

The fine against MIO Partners is the latest blow to the reputation of the world’s largest management consulting firm, which has spent more than $600 million settling claims related to its work against with US opioid manufacturers.

McKinsey previously paid $15 million to the US Department of Justice to settle claims that it undisclosed conflicts of interest in bankruptcy cases, while MIO Partners paid $39.5 million last year to settle a class-action lawsuit over the handling of its pension funds.

Earlier this month, the United States prosecutor charged a McKinsey partner with securities fraud, alleging that he “abused his access to material non-public information” to make $450,000 in profit from trading before the client its own, Goldman Sachs acquired $2.2 billion. McKinsey said it fired the partner. Rajat Gupta, a former global managing partner of McKinsey, was sentenced to prison in 2012 for insider trading more than 10 years earlier.

SEC fines to follow disclosure reported by the FT in 2016 that McKinsey was running a secret insider fund raised questions about how information gathered from advice affects investment decisions. The MIO said at the time that it had a strict policy to avoid conflicts of interest.

Jay Alix, a US rival restructuring expert, has also alleged a conflict of interest in the firm’s advice to companies that are about to default, noting that its internal fund has invested to some creditors. McKinsey has denied the allegations.

The SEC order, published Friday, says that McKinsey partners who oversee MIO investment options generally have access to confidential information about financial results, transactions and accounting their client’s funding plan.

The MIO “did not have properly designed policies and procedures in place to address the dual roles of McKinsey advisors who are involved in the MIO’s investment options,” the SEC added.

In one case, the SEC said, access to confidential information by a McKinsey partner “created a risk” that one of the company’s units could affect the company’s bankruptcy reorganization plan. company in a way that benefits the MIO.

The MIO did not acknowledge or deny the SEC’s findings, but agreed to the cease-and-desist and censorship orders, as well as the $18 million penalty.

A spokesperson for the MIO said it was “delighted to address this matter in relation to the design and implementation of its historic policies and procedures”.

The SEC order does not identify any abuses of material non-public information by MIO or McKinsey, and adds that the MIO believes the steps it has taken in recent years to strengthen its policies Its policies and procedures “help us stay fully in line with industry best practices”.

MIO’s board of directors now consists entirely of independent directors and retired McKinsey partners, it added.

In a separate statement, McKinsey said: “The historical issues identified in the SEC order were resolved by the MIO through enhanced policies and procedures, and the order did not identify any abuses. confidential or material non-public information of the MIO or McKinsey. MIO and McKinsey operate separately and follow strict policies to limit the sharing of information between the two organizations.”

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