Exception Tracking Spreadsheet (TicklerTrax™)
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SEC assesses $18M penalty for compliance failures
The Securities and Exchange Commission has announced that an affiliate of McKinsey & Company that offers investment options exclusively to current and former McKinsey partners and employees has agreed to pay an $18 million penalty for compliance failures.
The SEC’s order finds that the affiliate maintained inadequate policies and procedures to prevent McKinsey partners from misusing material nonpublic information they obtained as consultants to public companies and other McKinsey clients while they were simultaneously overseeing the affiliate’s investment decisions. The SEC’s order finds that McKinsey’s affiliate MIO Partners Inc. was investing hundreds of millions of dollars in companies that McKinsey was advising. Certain McKinsey partners oversaw MIO’s investment choices and also had access to material nonpublic information as a result of their McKinsey consulting work. 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.
According to the SEC’s order, MIO did not have reasonably designed policies and procedures to address the dual roles for McKinsey consultants who were involved in MIO’s investment choices. For example, the order cites an instance where a McKinsey partner’s access to confidential information about MIO’s investments in a company through a third-party manager created a risk that one of McKinsey’s units could influence the company’s Chapter 11 reorganization plan in a way that favored MIO’s investment.
The SEC’s order finds that MIO, which is a registered investment adviser and wholly-owned subsidiary of McKinsey, violated Sections 204A and 206(4) of the Investment Advisers Act of 1940 and Rule 206(4)-7. Without admitting or denying the findings, MIO consented to the entry of a cease-and-desist order and a censure, and agreed to pay the $18 million penalty.