Risk & Compliance

McKinsey Accused of Running ‘Criminal Enterprise’

The founder of rival AlixPartners says the consulting firm hid conflicts of interest to win lucrative court appointments to represent bankrupt comp...
Matthew HellerMay 10, 2018

The founder of corporate restructuring firm AlixPartners has accused rival McKinsey & Co. of making at least $101 million in bankruptcy consulting fees by concealing potentially disqualifying conflicts of interest from the courts.

In a complaint filed on Wednesday, Jay Alix said McKinsey had conducted a “criminal enterprise” to secure lucrative consulting appointments, making it liable for violations of the federal Racketeering Influenced and Corrupt Organizations Act.

If McKinsey had truthfully disclosed its conflicts, “it would not have been able to effectively compete against [AlixPartners] in the bankruptcy restructuring market,” the suit said, citing the “serious conflicts of interests in the high-profile bankruptcy proceedings in which McKinsey has sought employment.”

“Through its racketeering scheme, McKinsey has unlawfully profited by at least $101 million to date, in the form of bankruptcy consulting fees,” Alix alleged.

As Reuters reports, “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.”

The dominant firms in the bankruptcy consulting business include AlixPartners, FTI Consulting, and Alvarez & Marsal. Restructuring specialists seeking a court appointment to work for a bankrupt company are required to disclose links to other parties in the case, such as investors, professionals and creditors, that could present conflicts of interest.

According to Alix, who owns 35% of AlixPartners, McKinsey has routinely flouted that requirement by submitting “false and materially misleading declarations under oath … in order to unlawfully conceal its many significant connections to ‘interested parties.’”

In one case, McKinsey allegedly concealed that, while it was advising mining company Alpha Natural Resources on maximizing the value of its business, it was also helping U.S. Steel reduce what it paid Alpha for its coal.

“Had McKinsey complied with the law and truthfully disclosed its connections to interested parties, it would have been precluded from being hired as a bankruptcy professional,” Alix said.

In a statement, McKinsey described the accusations as “the latest attempt by Jay Alix and Alix Partners to harass and disparage McKinsey, using baseless and anti-competitive litigation, which courts have consistently rejected.”