July 31, 2018 / 5:44 PM / a year ago

McKinsey urges end to turnaround pioneer's U.S. racketeering lawsuit

NEW YORK, July 31 (Reuters) - McKinsey & Co urged a Manhattan federal judge to dismiss turnaround veteran Jay Alix’s lawsuit claiming the consulting firm operates as a “criminal enterprise” by hiding conflicts of interest in its bankruptcy and restructuring operations.

In a Monday night court filing, McKinsey labeled Alix’s May 9 lawsuit was “the litigation equivalent of a thermonuclear device,” bereft of support for its “stark allegations of fraud” or to show any scheme to harm Alix’s rival firm, AlixPartners.

Alix’s lawyer Sean O’Shea rejected McKinsey’s defenses.

“The arguments in McKinsey’s motion are borderline delusional,” O’Shea, a partner at Boies Schiller & Flexner, said in a statement.

McKinsey’s filing and Alix’s response escalate the battle for market share from lucrative bankruptcy restructurings.

Lawyers and advisers hoping to work for bankrupt companies must disclose potentially conflicting ties to investors, creditors and other parties.

Alix’s 150-page complaint said McKinsey and six executives including global managing partner emeritus Dominic Barton failed at that task.

He said this let McKinsey’s Recovery & Transformation Services US (“RTS”) unit collect $101 million of bankruptcy fees it did not deserve, in a scheme that violated the federal Racketeer Influenced and Corrupt Organizations Act (“RICO”).

McKinsey, with nearly 30,000 employees in more than 120 cities, countered that Alix could not show any intent to defraud or any direct injury, including in 13 bankruptcies where he said its conflicts would have disqualified it from being hired.

“The complaint is more than just an unfounded and reckless use of RICO by a competitor,” McKinsey said. “It is a personal attack on the good names and reputations of the six McKinsey professionals named as individual defendants.”

O’Shea said Alix looked forward to proving his “meticulously supported” claims at trial.

“Although McKinsey whines that it is being targeted by Jay Alix as a competitor, it fails to explain why Mr. Alix would pick on McKinsey as opposed to other competitors,” he said.

Alix is suing as an individual to recoup alleged improper fees and triple damages under RICO, which allows civil lawsuits over alleged criminal enterprises that cause direct harm.

The lawsuit was filed after an article in The Wall Street Journal questioned whether McKinsey’s RTS unit sufficiently disclosed potential conflicts of interest.

An Aug. 22 conference is scheduled before U.S. District Judge Jesse Furman.

McKinsey began advising Chapter 11 debtors through RTS in 2011. The industry is dominated by rivals including AlixPartners, Alvarez & Marsal and FTI Consulting Inc.

The case is Alix v McKinsey & Co et al, U.S. District Court, Southern District of New York, No. 18-04141. (Reporting by Jonathan Stempel in New York Editing by Susan Thomas)

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