EDINBURGH — The culture of corruption runs deep and wide at McKinsey, the consultancy that worked with Gupta-linked Trillian to capture state funds through Eskom. McKinsey employees worked with their pals at Gupta-linked Trillian to suck money out of Eskom through a “sham” contract – but this greedy behaviour is not limited to the southern tip of Africa. The New York Times has revealed that McKinsey is accused of dirty dealing in its bankruptcy work in the US and elsewhere by secretly benefiting from plans it puts in place to assist the companies in trouble. – Jackie Cameron
By Thulasizwe Sithole
Professional services consultancy McKinsey is in the headlines again in connection with unethical – and illegal – business behaviour. In South Africa, graft-tainted McKinsey is best known for working with Gupta-linked Trillian to siphon R1.6bn out of state owned utility, Eskom.
McKinsey has repaid the money it charged Eskom for a business turnaround plan and has apologised to South Africa. However, a fresh scandal underscores that ethical problems within McKinsey aren’t confined to South Africa.
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The New York Times reports on a case which sees a judge in Virginia reopening a more than two-year-old case on Wednesday to consider accusations that the powerful consultancy McKinsey & Company had defrauded his court while advising a bankrupt coal company.
“These are some of the most serious allegations that I have ever seen,” said the judge, Kevin R. Huennekens of the United States Bankruptcy Court for the Eastern District of Virginia, in Richmond.
“The decision to reopen the bankruptcy case of Alpha Natural Resources was the latest in a series of court actions and legislative manoeuvres meant to examine whether McKinsey has failed to disclose investments in the entities it helps reorganise — an arrangement that could allow the company to profit off the plan it helped put in place. The request to reopen came from a retired turnaround specialist, Jay Alix, and was supported by the Justice Department’s Office of the United States Trustee,” says The New York Times.
The federal bankruptcy code bars the professionals who work on bankruptcies from hiding their stakes, although possessing an interest in a company is not automatically disqualifying, says the news outlet. The regulations require the disclosure of such connections between companies to ensure fair treatment of all parties.
McKinsey has denied wrongdoing. “We continue to stand by our disclosures, which have always fully complied with the law, and we are confident that Alix’s fraud claims will be exposed as completely meritless,” the company said in a statement.
This is not an isolated matter: McKinsey already faces similar claims of misconduct from Alix in the bankruptcy of another energy company, Westmoreland Coal, in Texas. And an examination by The New York Times revealed how the company is acting as an adviser in the bankruptcy-like restructuring of Puerto Rico while also holding some of the territory’s debt. A bipartisan group of lawmakers has proposed legislation that would strengthen the disclosure requirements in Puerto Rico’s case, says The New York Times.
Alix, who formed a small investment company that bought some of Alpha’s unsecured debt, has expressed concerns about McKinsey’s behaviour in bankruptcies for several years, continues the publication.
Alix alleged that there was “substantial, irrefutable evidence” that a McKinsey investment fund held an indirect stake in Alpha’s secured debt. He told the court he believed McKinsey had improperly reaped a profit of $50m because it helped determine the way secured creditors were compensated, added The New York Times.
