SEC Fines McKinsey Subsidiary MIO Partners $18 Million for Puerto Rico Conflict of Interest and Material Nonpublic Information Violations

The Securities and Exchange Commission censured MIO Partners Inc. (McKinsey’s investment subsidiary) and ordered it to pay $18 million to settle allegations that it had access to material nonpublic information about Puerto Rico and other issuers while simultaneously overseeing investments that included those issuers’ securities—a direct violation of the Investment Advisers Act. The SEC found that in January and February 2017, MIO was directly invested in Puerto Rico municipal bonds at the exact time McKinsey was providing restructuring advice to the Puerto Rico Financial Oversight and Management Board, with MIO’s investment committee—which included active McKinsey partners serving as restructuring consultants—overseeing MIO’s sale of nearly $1 million worth of Puerto Rican bonds during this period. Through at least June 2017, MIO remained invested in Puerto Rico debt via separately managed accounts and third-party managed funds. McKinsey partners on MIO’s investment committee were ‘routinely privy to material nonpublic information relating to, for example, financial results, planned bankruptcy filings, mergers and acquisitions, product pipelines and funding efforts, and material changes in senior management.’ The SEC found MIO’s supervisory systems failed to prevent misuse of confidential information, though the agency did not accuse the firm of actual insider trading. MIO managed $31.5 billion in regulatory assets and provided investment options exclusively to current and former McKinsey partners and employees, meaning McKinsey’s own workforce directly benefited from restructuring advice the firm provided to Puerto Rico. This was McKinsey’s second major conflict-of-interest settlement in 2021—the firm had paid $15 million in February to settle similar disclosure failures in 14 other bankruptcy cases. By this time, McKinsey had collected approximately $150 million from the Puerto Rico fiscal board while its investment arms profited from the restructuring terms it helped design.