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McKinsey Settles With US DoJ Over Bankruptcy Disclosures

McKinsey & Co. agreed to pay $15 million to settle the U.S. 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.

The Department of Justice's U.S. Trustee Program (USTP) said it has entered into a multi-district settlement agreement with global consulting firm McKinsey & Company, Inc., resolving disputes over the adequacy of McKinsey's disclosures of connections in Chapter 11 bankruptcy cases.

Under the Bankruptcy Code and Rules, the retention and payment of a professional firm by a debtor company in bankruptcy is contingent upon approval by the bankruptcy court after the firm discloses all of its connections to the debtor, creditors, and other parties.

These strict disclosure requirements allow the court, USTP, and parties involved in the case to identify any conflicts of interest that may taint the professional's advice and favor one interested party over another.

The USTP alleged that McKinsey made insufficient disclosures about its clients and investments in certain entities that were connected with the debtors that employed McKinsey to provide financial advice on their respective bankruptcy reorganizations. Specifically, the USTP alleged in court filings that McKinsey failed to identify clients who were connected with the debtors it represented and lacked candor regarding its investments in entities that could create a conflict of interest.

Under the terms of the settlement, McKinsey agrees to pay $15 million in three bankruptcy cases to remedy inadequate disclosures of connections and to make additional disclosures. The payment will be distributed to the creditors and other parties in accordance with the reorganization plans approved by the courts or other applicable law. This is one of the highest repayments made by a bankruptcy professional for alleged non-compliance with disclosure rules.

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