Securities attorney who worked for a hedge fund here. MIO (the fund adviser) would have to implement "ethical screens" to prevent the fund from acting or appearing to act on information from McKinsey consultants. There are a few major problems with how ethical screens work in practice:
- It's based almost entirely on self-reporting. If a MIO employee has access to material non-public information (whether from a McKinsey consultant or elsewhere) MIO's compliance department has virtually no way of knowing that investment needs to be restricted unless the employee tells them.
- Insider Trading is one of the most difficult allegations to defend against. You're innocent until you can prove otherwise. How do you prove you didn't do something? Typically through records outlining the rationale for your investment decision. The quality of the notes, and investment decisions for that matter, of Portfolio Managers varies significantly from PM to PM.
Rather than simply rely on policies and procedures it seems MIO has contracted most of the investment responsibilities out to sub-advisers and/or has some sort of fund-of-funds structure to their investments. Whether that's to make sure the transactions are actually untainted by inside information or whether that's to obscure transactions that are tainted by inside information is anyone's guess. It seems most of the issues outlined in the article stem from McKinsey failing to disclose their ultimate beneficial ownership of securities (by looking through to the fund's holdings) rather than anyone being able to demonstrate (yet) MIO has acted on insider information.
I also did a brief stint as an accountant at a big four firm. There's a reason accountants aren't permitted to invest in their corporate clients. Not only is there potential for insider trading but it could cloud their professional judgment. As the lines between the big accounting firms, law firms, and consulting firms blur it no longer makes sense that they operate under vastly different regulatory and ethical obligations.
Edit: Others might also be interested to know that while McKinsey's setup is apparently unusual for the consulting world, there are many large law firms who are also SEC-Registered Investment Advisers and deal with the same conflicts of interest. The potential for insider trading in those cases might be even higher as the law firms are often filing disclosure documents with the SEC on their clients' behalf.