May 9, 2018 / 5:57 PM / 4 months ago

Restructuring pioneer Jay Alix sues McKinsey for racketeering

WILMINGTON, Del., May 9 (Reuters) - The founder of corporate restructuring firm AlixPartners sued competitor McKinsey & Co on Wednesday, claiming the strategic consulting giant ran a “criminal enterprise” that concealed potential conflicts of interest from U.S. bankruptcy judges in order to land valuable advisory assignments.

McKinsey and its affiliates committed bankruptcy fraud, mail fraud, wire fraud and engaged in a pattern of racketeering, according to Jay Alix, who filed his lawsuit in federal court in Manhattan.

Lawyers and financial advisers who seek a judge’s approval to work for a bankrupt company must disclose their links to other parties in the case, such as investors, professionals and creditors, that could present conflicts of interest. The process is meant to ensure transparency and fairness and violations can lead to sanctions, and in one case, even prison.

Among Alix’s allegations, he said McKinsey concealed that, while it was advising mining company Alpha Natural Resources on maximizing the value of its business, the firm was also helping U.S. Steel reduce what it paid Alpha for its coal.

A McKinsey spokesman did not immediately respond to a request for comment.

“By engaging in its unlawful scheme, McKinsey has profited by receiving tens of millions of dollars in bankruptcy fees that it would not have otherwise earned had it disclosed its numerous connections to interested parties,” said the complaint.

The lawsuit said McKinsey had unlawfully profited by at least $101 million.

McKinsey has been branching out of traditional consulting and has been gaining ground in the lucrative world of placing professional managers at companies that are financially distressed.

That has intensified competition with the sector’s dominant firms of AlixPartners, FTI Consulting and Alvarez & Marsal. In 2014, AlixPartners sued two former managing directors that jumped to McKinsey for violating employment contracts.

McKinsey has landed key roles in bankruptcies such as American Airlines, renewable energy firm SunEdison and power provider GenOn and others, according to Alix’s complaint.

Alix owns 35 percent of AlixPartners, which assigned its claims against McKinsey to him, but he is acting on his own behalf. He is seeking treble damages, disgorgement of fees received by McKinsey, and a court order requiring McKinsey to comply with bankruptcy disclosure rules.

Alix has been skirmishing with McKinsey over disclosures since at least 2016. He convinced a U.S. Bankruptcy judge to order added McKinsey disclosures in the Alpha Natural case, an assignment led by former AlixPartners managing director Kevin Carmody. (Reporting by Tom Hals in Wilmington, Delaware Editing by Marguerita Choy)

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