MIO Partners, a private equity fund affiliated with consulting firm McKinsey & Company, fined the United States Securities and Exchange Commission $ 18 million for allegations the fund had inadequate controls to prevent the use of inside information derived from McKinsey’s consulting work.
While the SEC complaint, which was filed on Friday, does not claim that MIO Partners abused the confidential information of McKinsey clients, it held that policies and procedures aimed at preventing the misuse of confidential information were inadequate. MIO’s compliance failures lasted 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 Board of 12 made up of former partners and independent directors of McKinsey.
“These partners were regularly aware of confidential information such as financial results, planned bankruptcy filings, mergers and acquisitions, product pipelines and financing efforts, as well as significant changes in senior management at these companies, âthe SEC said in its complaint.
McKinsey’s use of an internal investment fund is atypical. Most large companies, including consultants, hire third-party companies to oversee employee retirement funds.
“The historical issues identified in the SEC order were resolved by the MIO through strengthened policies and procedures, and the order does not identify any misuse of confidential or non-public material by the MIO or McKinsey. “MIO said in a statement on the settlement. . âMIO and McKinsey are operationally separate and follow strict policies to limit information sharing between the two organizations. “
The SEC reprimand is the latest in a series of regulations in which McKinsey has not admitted any wrongdoing or liability.
McKinsey reached a $ 15 million settlement in February 2019 with the United States Trust Program – the unit of the Department of Justice overseeing bankruptcy proceedings – over inadequate disclosures in advising on bankruptcy cases in the United States. Chapter 11 of Alpha Natural Resources (ANR), Westmoreland Coal and SunEdison.
In November 2015, MIO placed money with a hedge fund heavily invested in ANR debt while McKinsey’s bankruptcy advisory arm RTS advised the coal company. McKinsey failed to disclose the investment in the hedge fund that held the ANR debt.
Jay Alix, founder of AlixPartners, has accused McKinsey of conflict of interest and racketeering in his insolvency work. McKinsey denied Alix’s allegations and called them a smear campaign against a rival restructuring consultant.
Earlier this year, McKinsey paid $ 573 million to settle claims by 49 states that his marketing work for opioid manufacturers contributed to the devastating opioid epidemic in the country. Along with McKinsey advising drug companies, he was also advising the FDA on its prescription drug policy, according to court documents.
NBC News reported earlier this month that McKinsey has advised Chinese state-owned companies that have supported Beijing’s naval reinforcement and its efforts to expand its influence around the world while simultaneously working with the Pentagon. There is no claim that McKinsey has harmed US national security or violated federal contracting laws in his work with Chinese clients.