Jay Alix Files RICO Action Against McKinsey
NEW YORK, May 9, 2018 /PRNewswire/ -- Boies Schiller Flexner today filed a federal racketeering lawsuit on behalf of Jay Alix in the U.S. District Court for the Southern District of New York alleging that McKinsey & Company Inc., McKinsey RTS, and senior McKinsey executives "knowingly and intentionally submitted false and materially misleading declarations under oath in … bankruptcy proceedings … in order to … avoid revealing numerous disqualifying conflicts of interest that would preclude it from being hired as a bankruptcy professional in those proceedings." "McKinsey's racketeering activity was calculated to harm AlixPartners by depriving it of valuable consultancy assignments," according to the complaint.
In addition to founding industry leader AlixPartners, in 2008-2009, Jay Alix led the creation and development of the corporate restructuring and record-fast bankruptcy turnaround plan that saved General Motors; in the 1990s, he led the restructuring of the City of Detroit's operations and finances; and in 2017, played a leadership role in supporting the restructuring of the 40,000+ students and 100 locations of the Detroit Public School System, all on a pro bono basis.
According to the lawsuit, McKinsey's "criminal enterprise" included "bankruptcy fraud," "mail fraud," and "wire fraud." The suit further alleges that, "[b]y 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 and conflicts of interests as required by law. 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."
The suit also alleges that "McKinsey has offered illegal 'pay to play' arrangements to attorneys that handle high-stakes bankruptcy matters, whereby McKinsey offered to refer its vast network of consulting clients to these attorneys in exchange for these attorneys exclusively referring bankruptcy clients to McKinsey for professional employment."
"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 Sean F. O'Shea, partner and lead counsel for Jay Alix at Boies Schiller Flexner. "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."
Jay Alix, who is bringing the action independently of AlixPartners, alleges in the lawsuit that McKinsey's CEO, Dominic Barton, "admitted to Alix that McKinsey was intentionally concealing its clients' identities and that it was conducting the 'pay to play' scheme," but "offered to introduce AlixPartners to [other companies] … that needed consulting services" as "blatant attempted pay-offs and bribes offered in return for dropping the issues concerning McKinsey's acknowledged pay-to-play scheme and its illegal disclosure declarations."
The lawsuit alleges that "McKinsey's racketeering activity has become particularly egregious in its three most recent cases" involving Alpha Natural Resources, SunEdison, and GenOn. In the GenOn case, the complaint alleges, McKinsey "concealed, omitted, and lied about its connections to dozens of Interested Parties," including client relationships with GenOn's parent company, estate creditors, and competitors of the debtor. McKinsey also "ensured that the debts that GenOn owed it were paid ahead of other creditors before GenOn filed for bankruptcy in order for McKinsey to avoid disqualification as a creditor of the estate," and then, to avoid disqualification, "falsely treated these payments as ordinary course payments to avoid preference liability," the lawsuit says.
More assets pass through the United States Bankruptcy Court System than any other court system in the world, with over three trillion dollars of assets and liabilities being adjudicated in the last ten years alone. The McKinsey bankruptcy cases that are the subject of Jay Alix's lawsuit involve over $350,000,000,000 ($350 billion) of assets plus liabilities, and companies with over 275,000 corporate employees and operations in all 50 states and around the world.
SOURCE Boies Schiller Flexner LLP
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