McKinsey & Co. agreed to pay $15 million to settle Justice Department allegations that the consulting firm failed to make required disclosures of potential conflicts in three bankruptcy cases it has advised on in recent years, WSJ Pro Bankruptcy reported. The settlement was struck between McKinsey and the U.S. Trustee Program, which is charged with protecting the integrity of the nation’s bankruptcy system. The amount represents “one of the highest repayments made by a bankruptcy professional for alleged noncompliance with disclosure rules,” according to the Justice Department. “McKinsey failed to satisfy its obligations under bankruptcy law and demonstrated a lack of candor with the court and USTP,” said Cliff White, director of the Trustee Program. He added that if McKinsey repeats its problematic disclosure practices, his office “will seek even more far-reaching remedies.” In a statement yesterday, a McKinsey spokeswoman said the firm agreed to the settlement so that it can move forward and focus on serving its clients. The firm didn’t admit to any wrongdoing but said the settlement process had “provided additional clarity for the filing of future disclosures.” McKinsey entered the bankruptcy advisory business in 2001 and has advised 14 companies going through the chapter 11 process over the years. Read more.
In a related New York Times analysis, McKinsey is alone among the leading consulting firms in operating the hedge fund, which invests for about 30,000 current and former McKinsey partners and other employees. McKinsey does not disclose the identity of its clients — the chief executives, prime ministers and princes who seek its counsel on management best practices. And even as the firm is privy to market-moving corporate maneuvers and confidential government information, its hedge fund’s investments are often secret, with a large part of its approximately $12.3 billion in holdings concealed behind a tangle of shell companies in an island tax haven in the English Channel. McKinsey says that the way the fund is structured and operated ensures that its employee investors do not stand to benefit from the firm’s inside knowledge and consulting advice. Hedge fund managers do not coordinate with McKinsey consultants, the firm says, and about 90 percent of McKinsey Investment Office’s capital is managed by outside funds. Read more.