Sunday, September 26, 2021

Consultant for Puerto Rico Fiscal Board Remains Mired in Lawsuits

By on June 16, 2021

McKinsey Must Address Over 30 Opioid Crisis Related Actions 

SAN JUAN — Despite a $573 million settlement to halt investigations by every state into its role in the U.S. opioid crisis, corporate consulting firm McKinsey & Co. is currently being sued by cities and counties, in 11 actions; tribal entities, in six actions; 10 individuals; and seven class actions.

The firm’s payout to the 50 states, the District of Columbia and five territories includes $4.3 million to Puerto Rico, a sum that pales in comparison to what it has received from the island’s coffers, given that the federally created Financial Oversight and Management Board has contracted the New York-based management consultant since 2016 in its effort to rein in the commonwealth government’s spending and restructure its debt. 

Fiscal Oversight & Management Board (Juan J. Rodríguez/CB)
Puerto Rico’s Fiscal Oversight and Management Board during a 2017 public meeting. (Juan J. Rodríguez/CB)

The iconic, nearly century-old firm was hired for “strategic consulting” on “development, recommendations and writing the Territory’s fiscal plan or the amendment to the fiscal plan submitted for approval by the governor of Puerto Rico,” as well as work related to “the letters required by Promesa to certify or identify violations” to the fiscal plans submitted for the government and its instrumentalities.

According to one of the opioid-related lawsuits reported by the Associated Press, the global advisory firm “played a major role in crafting and implementing” the strategy used by businesses, such as drug manufacturers like Johnson & Johnson and Purdue Pharma, which manufactured OxyContin, on how to sell more painkillers amid a two-decade-long opioid epidemic that is said to have claimed some 450,000 lives.

The plaintiffs against the management consultant’s role in the opioid crisis allege “negligence, negligent misrepresentation, fraud, unjust enrichment and violation of consumer protection statutes” by McKinsey entities, which are called a “public nuisance,” according to a transfer order by the U.S. Judicial Panel on Multidistrict Litigation, which earlier this month consolidated the cases to be heard in the Southern District of New York. Plaintiffs in eight actions are bringing federal civil Racketeer Influenced and Corrupt Organizations (RICO) Act claims.

After conflict of interest allegations arose in 2019 that McKinsey subsidiary MIO Partners held investments in Puerto Rican debt, the island’s fiscal oversight board commissioned a report by Luskin, Stern & Eisler LLP into the matter. The law firm found that McKinsey consultants had not advised in the restructuring of Puerto Rican bonds and “did not know about the investments and had no influence over MIO’s investment decisions,” the board said in a statement.

“We deeply regret that we did not adequately acknowledge the tragic consequences of the epidemic unfolding in our communities,” then-McKinsey Global Managing Partner Kevin Sneader said in a statement in March after the firm’s $5 million settlement with Nevada, the last of the 50 states with which the firm reached an agreement. “We are determined to take the steps necessary to strengthen our firm’s risk management policies and culture. We will build on the steps we have already taken to learn from past mistakes, and ensure we consistently meet the high standards our firm has always aspired to.”

Matt Stoller, the research director at the nonprofit American Economic Liberties Project, a corporate watchdog, is calling on President Biden to not hire the consultancy for his infrastructure initiative—which would be led in part by Transportation Secretary Pete Buttigieg, a former Mckinsey consultant—warning that the firm “is overpriced and corrupt” and “is also gunning for government cash,” reads the title of an article in which he questions whether, through its contract with the island’s fiscal oversight board, the firm has “been running Puerto Rico.”

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