The founder of consulting firm AlixPartners, Jay Alix, filed a complaint against rival McKinsey & Co. in Manhattan federal court Wednesday, charging the international consulting behemoth with racketeering conspiracies to conceal conflicts of interest in corporate bankruptcy cases.
The 150-page complaint filed in the U.S. District Court for the Southern District of New York alleged that McKinsey, its affiliates, and top officials operated a criminal enterprise, engaged in bankruptcy fraud, as well as mail and wire fraud, to keep tens of millions in bankruptcy fees flowing.
To keep the fraud covered up, Alix alleged, the company had to conceal the interested parties it had connections with in the bankruptcy restructuring market, costing AlixPartners the competitive opportunity at these business opportunities, according to the complaint.
“The bottom line of the complaint is that for over ten years, McKinsey has exempted itself from the stringent disclosure laws that the rest of the industry must follow,” said Boies Schiller Flexner partner Sean F. O’Shea, lead counsel for Alix. “It has used this unfair advantage to conceal disqualifying conflicts of interest, to the detriment of its law-abiding competitors. Jay Alix brought this lawsuit to put an end to that.”
The complaint alleged McKinsey “readily and publicly admits that it represents competitors of its clients.” However, in the bankruptcy context, this issue is “highly problematic” because of the fiduciary duty bankruptcy officials owe to their debtor clients, the complaint notes. Federal bankruptcy rules allow only for “disinterested” professionals to be hired as representatives. In order to clear this hurdle, Alix alleges, McKinsey has had to conceal its connections to competitors of its bankruptcy clients.
Alix alleged in the complaint that McKinsey’s CEO, Dominic Barton, admitted that the company was intentionally concealing its clients’ identities. Alix goes on to claim Barton offered to introduce AlixPartners to other companies in need of consulting services as “blatant attempted pay-offs and bribes offered in return for dropping the issues.”
The complaint pointed to a recent Wall Street Journal article that found other bankruptcy professionals that participated in the 13 cases in which McKinsey was retained disclosed an average of 171 connections per case. McKinsey, by comparison, disclosed an average of only five connections.
“Consequently, McKinsey has been able to obtain bankruptcy court approval of professional engagements that it otherwise would have lost to AP had it disclosed its connections fully and truthfully from the outset,” the complaint alleges.
Alix also alleges that McKinsey engaged in illegal pay-to-play arrangements with attorneys, offering to refer its network of consulting clients in exchange for the attorneys exclusively referring bankruptcy clients to McKinsey.
In a statement, a McKinsey spokesman called the complaint the latest attempt by Alix and his company to “harass and disparage McKinsey using baseless and anti-competitive litigation, which courts have consistently rejected.”
“The complaint states clearly that Mr. Alix is bringing the action as an assignee of AlixPartners. The courts and U.S. trustees have repeatedly dismissed Mr. Alix’s prior challenges, approved [McKinsey] RTS’ disclosures, and concluded that RTS has met all of its disclosure requirements,” the spokesman said. “We will vigorously defend ourselves against these meritless claims and expose Mr. Alix’s clear pattern of anti-competitive behavior in court.”