July 13, 2024

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McKinsey prevails in racketeering case brought by turnaround rival Jay Alix

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A US judge on Wednesday dismissed a lawsuit claiming that McKinsey’s bankruptcy practice was a “criminal enterprise” that flouted the conflict of interest rules governing corporate restructurings, delivering a significant victory for the consulting firm in a legal feud waged by turnaround specialist Jay Alix.

Judge Jesse Furman ruled Alix himself did not have a valid claim against McKinsey, since it was Alix’s former company, AlixPartners, that would have been harmed if the allegations were true.

Alix had claimed that McKinsey violated racketeering laws by failing to declare conflicts of interest in numerous bankruptcy cases, and that AlixPartners had assigned him the right to pursue and collect any damages.

The racketeering case in Manhattan federal court has been the centrepiece of a legal assault on McKinsey by Alix that has also included claims in various bankruptcy courts stretching back a decade. Bob Sternfels, McKinsey’s global managing partner, and Dominic Barton, one of his predecessors, were also defendants in the suit. Furman had already once dismissed the case, before the earlier ruling was overturned on appeal.

McKinsey, which entered the restructuring business as a competitor to AlixPartners in 2001, has maintained the claims are without merit and said on Wednesday it was “glad the case has once again been dismissed”.

Furman ruled that AlixPartners did not expressly assign the rights to any racketeering claims to Alix, which forced him to throw out the suit.

“The court does not reach that conclusion lightly given that it comes after six years of litigation, including two motions to dismiss and one appeal,” he wrote. “But Alix has no one to blame but himself — or perhaps AlixPartners.”

Furman continued: “It is not clear whether Alix and AlixPartners were merely careless in drafting the assignment or if they tried to play fast and loose in an effort to permit Alix to seek relief while shielding AlixPartners from the risks and obligations that would fall on a party to a federal case.”

Alix no longer has any management or board role at AlixPartners, though he remains a minority shareholder. AlixPartners declined to comment.

Sean O’Shea, an attorney for Alix, said he “respectfully disagreed” with the ruling and expected to appeal a second time. Asked if this was the end for the racketeering case, he replied: “Oh no, no, no. Not even close.”

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