SINGAPORE (Feb 25): McKinsey agreed to pay US$15 million ($20 million) to end a probe by the US Trustee into whether the global consulting giant violated disclosure rules designed to prevent conflicts of interest in corporate bankruptcies, a federal judge said in a court filing.

Under the terms, McKinsey did not admit wrongdoing and the US Trustee agreed to drop its objections to fees charged by the company’s bankruptcy unit in three Chapter 11 cases. The US Trustee is an arm of the Department of Justice that monitors bankruptcies to ensure compliance with federal law.

US Bankruptcy Judge Marvin Isgur had been mediating a months-long dispute between McKinsey and the US Trustee and Jay Alix, a retired bankruptcy adviser. The Trustee’s office and Alix accused McKinsey of hiding potential conflicts of interest that could have disqualified the company from acting as a bankruptcy adviser in some cases.

“The settlement does not opine in any way on the adequacy of McKinsey’s prior disclosures and, as Judge Isgur ­noted, the proposed settlement resolves ‘good faith disputes concerning the application of Bankruptcy Rule 2014’,” the company says in an emailed statement. “McKinsey has agreed to this settlement in order to move forward and focus on serving its clients.”

Alix, who was not part of the deal, says he plans to continue pressing his objections to the way McKinsey reports potential conflicts of interest. “This settlement does not bring them into compliance with all the issues we have raised,” Alix says. “We’re going to pursue our investigation and continue bringing out these hidden conflicts.”

The US$15 million will be evenly divided by three companies that McKinsey advised in bankruptcy. The US Trustee also agreed not to join any investigation of the other 11 bankruptcy cases in which McKinsey has served as a court-approved adviser.

McKinsey’s bankruptcy unit has collected more than US$140 million in fees from those 14 cases, according to court records. The US Trustee probe grew out of a fight between McKinsey and Alix, founder of a rival bankruptcy advisory firm. Alix, who retired several years ago, but remains a well-known figure in the restructuring world, sued McKinsey in federal court in New York last year, accusing the firm of flouting bankruptcy rules.

In bankruptcy, lawyers and financial advisers are required to disclose any potential conflicts and cannot have any financial ties that could taint their restructuring advice. McKinsey has said it complied with all appropriate bankruptcy rules, and that Alix was just trying to push a competitor out of the bankruptcy advisory business.

In another development, McKinsey, which advises Puerto Rico on its debt, is deemed to have complied with all legal and contractual requirements and had no knowledge of a subsidiary’s investments in the country’s debt, according to a report for the island’s oversight board.

MIO Partners, a McKinsey subsidiary that oversees pension plans and investments for the parent company’s partners, held direct and indirect investments in Puerto Rico debt while McKinsey was working with the US commonwealth. McKinsey consultants did not know about the stakes and had no influence over MIO’s decisions, according to the investigative report provided to the Financial Oversight and Management Board for Puerto Rico.

“We have full confidence in McKinsey’s analysis of fiscal and economic reform,” says Natalie Jaresko, executive director of the board, a US-appointed group that aims to spur economic growth in the island nation.

Upon learning of the the MIO investments last year, the board determined there was no conflict of interest. It ordered an independent investigation after The New York Times reported the subsidiary held additional Puerto Rico debt.

McKinsey agrees to pay US$15 mil to end bankruptcy probe

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McKinsey agrees to pay US$15 mil to end bankruptcy probe

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