McKinsey investment fund pays $18 million to SEC for compliance failures
MIO Partners, a private investment fund affiliated with consulting firm McKinsey & Company, has agreed to pay an $18-million fine to the US Securities and Exchange Commission (SEC) over allegations the fund had inadequate controls to prevent the use of insider information from McKinsey’s consulting work.
Though the SEC complaint, which was filed on Friday, did not claim MIO Partners misused the confidential information of McKinsey clients, it found the policies and procedures to prevent the misuse of confidential information to be inadequate. The compliance failures of MIO ran from at least 2015 to 2020, according to the SEC.
MIO, also known as McKinsey Investment Office, is a subsidiary of McKinsey & Company with regulatory assets under management of $31 billion as of December 31, 2020. The fund invests on behalf of current and former McKinsey employees and is managed by a staff and a 12-person board of former McKinsey partners and independent directors.
“These partners were routinely privy to confidential information like financial results, planned bankruptcy filings, mergers and acquisitions, product pipelines and funding efforts, and material changes in senior management at those companies,” the SEC said in its complaint.
McKinsey’s use of an in-house investment fund is atypical. Most large companies, including consultancies, hire third-party firms to oversee employee retirement funds.
“The historical issues identified in the S.E.C. order have been resolved by MIO through strengthened policies and procedures, and the order does not identify any misuse of confidential or material non-public information by either MIO or McKinsey,” MIO said in statement on the settlement. “MIO and McKinsey are operationally separate and follow strict policies to limit information sharing between the two organizations.”
The SEC rebuke is the latest in a string of settlements where McKinsey has admitted no wrongdoing or liability.
McKinsey in February 2019 reached a $15-million settlement with the US Trustee Program – the Department of Justice’s unit overseeing bankruptcy proceedings – for inadequate disclosures in advising on the Chapter 11 bankruptcy cases of Alpha Natural Resources (ANR), Westmoreland Coal, and SunEdison.
MIO in November 2015 placed money with a hedge fund heavily invested in ANR debt while McKinsey’s bankruptcy advisory arm, RTS, was advising the coal company. McKinsey failed to disclose investment in the hedge fund that held ANR debt.
Jay Alix, founder of AlixPartners, has accused McKinsey of conflicts of interest and racketeering in its insolvency work. McKinsey has denied Alix’s allegations and characterized them as a smear campaign from a rival restructuring consultant.
McKinsey earlier this year paid $573 million to settle allegations from 49 states that its marketing work for opioid manufacturers contributed to the country’s devastating opioid epidemic. At the same time that McKinsey was advising pharmaceutical firms, it was also advising the FDA on its prescription drug policy, according to court documents.
NBC News earlier this month reported that McKinsey has been advising Chinese state-run enterprises that have supported Beijing’s naval buildup and efforts to extend influence around the world while concurrently working with the Pentagon. There are no allegations that McKinsey has damaged US national security or broken federal contracting laws in its work with Chinese clients.
