McKinsey files motion to dismiss against Jay Alix in restructuring fight over conflicts

The founder of a rival to McKinsey & Co accused the firm and its senior executives of running a “criminal enterprise” and hiding conflicts of interests to win client business.

Now the consulting firm giant is fighting back.

Jay Alix, the founder of restructuring firm AlixPartners, sued McKinsey in May, claiming that the consulting firm didn’t disclose conflicts in order to win valuable assignments advising clients on bankruptcy matters. Alix no longer holds a majority stake in AlixPartners and his lawsuit was filed in his individual capacity.

Financial advisers and lawyers who are seeking to work for a bankrupt company must disclose their ties to other parties in the case, such as investors and creditors, to avoid potential conflicts of interest and ensure they’re working in the best interests of their clients.

Alix sued McKinsey under the Racketeer Influenced and Corrupt Organizations (RICO) Act, a law that has historically been used to target mobsters, accusing the firm of bankruptcy fraud, mail fraud, and wire fraud.

He claimed that McKinsey’s restructuring business, called RTS, has received tens of millions in fees that it wouldn’t have ordinarily earned if it had disclosed conflicts with clients. According to the suit, McKinsey’s lack of disclosure has harmed AlixPartners.

The suit came after the Wall Street Journal reported in April that McKinsey had drawn criticism for disclosing far fewer potential conflicts of interest than other advisers.

On Monday, McKinsey filed a motion to dismiss the charges made by Alix, arguing that “there is not a single fact alleged in the 150 page complaint and accompanying appendix that supports its incendiary headline accusation that McKinsey ‘has unlawfully schemed to harm AlixPartners.'”

Alix’s complaint is “an unfounded and reckless use of RICO by a competitor of McKinsey,” the motion says. Alix has failed to demonstrate that McKinsey directly injured AlixPartners through lost revenue opportunities, it adds, alleging that there is no evidence that AlixPartners even applied for the 13 bankruptcy assignments that McKinsey had won.

Alix’s lawyer, Sean O’Shea of Boies Schiller Flexner, was not immediately available for comment.

McKinsey, which is known best for its traditional consulting business, only entered the bankruptcy advice business in 2011. It’s is a small player in an industry dominated by restructuring advisers like Alvarez & Marshal, FTI Consulting, and AlixPartners.

But the firm’s entrance into the space has chipped away at market share from incumbents, according to data from Debtwire, which ranked McKinsey fifth for fees generated by bankruptcy advisory work in 2017. McKinsey has worked on several large bankruptcies including American Airlines and energy company SunEdison.

This is not the first time that Alix has challenged McKinsey. Alix in 2016 formed a company called Mar-Bow Value Partners, named after iconic McKinsey partner Marvin Bower. Mar-Bow acquired a stake in coal producer Alpha Natural Resource, a McKinsey bankruptcy client, to gain legal standing to press McKinsey to disclose more about its connections to clients.

A McKinsey spokesperson said in a statement:

“… Courts have previously upheld the appropriateness of McKinsey’s disclosures. This lawsuit is just one more part of Mr. Alix’s anticompetitive campaign to push out of the market a competitor whose deep expertise and unmatched scale deliver superior bankruptcy outcomes.”