December 20, 2018

Sen. Warren, Rep. Velázquez Concerned by Reports of McKinsey's Conflicts of Interest In Advising Puerto Rico's Oversight Board

Firm Holds At Least $20 Million in Puerto Rican Bonds While Advising Oversight Board on Debt and Fiscal Plans

Text of the Letter (PDF)

Washington, DC - United States Senator Elizabeth Warren (D-Mass.) and Representative Nydia M. Velázquez (D-N.Y.) today sent a letter to the consulting firm McKinsey & Company regarding its work for Puerto Rico's Financial Oversight & Management Board.  The lawmakers' letter raises questions about McKinsey's potential conflicts of interest after a recent report revealed that the consulting firm-which closely advises the Oversight Board on Puerto Rico's fiscal plans, budgets, and debt-holds at least $20 million of Puerto Rico's bonds.

"If the news report is accurate, McKinsey is helping to determine how much money will be available to creditors, even though McKinsey is itself a creditor and stands to benefit from funds being available for debt service," the lawmakers wrote. "McKinsey's role in providing for debt service is especially troubling because funds available to creditors come at the expense of rebuilding the island and providing services to the people of Puerto Rico."

Puerto Rico's Oversight Board was established in 2016 under the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) and plays a critical role in Puerto Rico's economy and the restructuring of the island's large debt load. Since PROMESA was enacted, McKinsey has been essential to much of the Oversight Board's work, closely advising the Board on matters related to the island's debt, as well as on decisions about cuts to government services for the Puerto Rican people.  Since Hurricane Maria devastated the island in September 2017, the Oversight Board has approved fiscal plans that require deep cuts to services while providing generous recoveries for bondholders.

In September 2018, the New York Times reported that McKinsey, through one of its subsidiaries, holds at least $20 million in in Puerto Rican COFINA bonds-the values of which are directly affected by the same fiscal plans and budgets that McKinsey has been designing and evaluating for the Oversight Board.  The Times report also found that Whitebox Advisors, which manages funds for McKinsey's retirement plans and for other clients, holds more than $140 million of Puerto Rican bonds through multiple investment funds, including Pandora Select, which has held McKinsey money.  These conflicts of interest were not clearly disclosed by McKinsey prior to the New York Times report.

In their letter, Senator Warren and Representative Velázquez raised a number of questions about McKinsey's apparent conflicts of interest.  The lawmakers noted that as a consultancy, McKinsey has paved the way for many of Puerto Rico's creditors to receive handsome payouts, while the firm also stands to benefit significantly as one of the island's creditors.  The lawmakers also expressed concern with McKinsey's lack of disclosure, noting that the lack of disclosure might have violated the terms of the firm's contracts with the Oversight Board.

Senator Warren and Representative Velázquez asked McKinsey to answer a series of detailed questions about its work for the Puerto Rico Oversight Board and its potential conflicts and asked the consulting firm to respond by January 8, 2019.

The lawmakers' letter is the second inquiry made by Senator Warren to McKinsey in recent months.  In October 2018, Senator Warren wrote to McKinsey to request a full, transparent accounting of how McKinsey's work may have enabled the Kingdom of Saudi Arabia to repress critics and commit other human rights abuses. Representative Velázquez has introduced legislation that would require McKinsey and other consultants working on Puerto Rico's debt restructuring to disclose any conflicting financial interests.  

For more information about Senator Warren's work for Puerto Rico and the U.S. Virgin Islands since Hurricanes Irma and Maria, visit