McKinsey monkey business costs $15M

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 Chapter 11 cases it had advised on in recent years.

The settlement was struck between McKinsey and the US Trustee Program, which is charged with protecting the integrity of the nation’s bankruptcy system.

“McKinsey failed to satisfy its obligations under bankruptcy law and demonstrated a lack of candor with the court,” said Trustee Program director Cliff White. McKinsey had no immediate comment.

A 2018 investigation by The Wall Street Journal revealed that, in seven of the 14 Chapter 11 cases in which McKinsey acted as an adviser to the debtors, the firm had a financial interest in the outcome.

The WSJ found that McKinsey named far fewer connections in each bankruptcy case it worked on than other advisers did.

The Chapter 11 process requires that advisers working on a case be disinterested parties, and they are expected to disclose any potential conflicts.

Last month, the judge who had overseen a 2015 bankruptcy of coal-mining company Alpha Natural Resources decided to reopen that case to determine whether McKinsey’s investment in a hedge fund that received Alpha’s most valuable assets had tainted the bankruptcy process.

The judge said McKinsey never disclosed the investment to him even though he gave the firm an opportunity to disclose its connections privately in his chambers.