McKinsey Ordered to Face Racketeering Lawsuit by Rival Jay Alix

McKinsey & Co. lost its bid to end racketeering litigation brought by AlixPartners LLP founder Jay Alix over its alleged scheme to win bankruptcy consulting work by lying in more than a dozen court cases.

Judge Jesse M. Furman let Alix’s lawsuit move forward, saying it’s plausible McKinsey’s top executives—including global managing partner Bob Sternfels and his predecessor, Dominic Barton—led a racketeering enterprise that relied on fraud and obstruction of justice to obtain bankruptcy assignments.

Furman rejected most of McKinsey’s arguments for throwing out the case, which was revived on appeal after he previously dismissed it. The allegations, if true, establish that “high-level executives at McKinsey & Co. were aware of, and directly participated in, a fraudulent scheme,” the judge wrote.

The suit shows “conscious misbehavior on the part of McKinsey” and two affiliates, its US arm and its bankruptcy unit, Furman said. “In particular, Alix plausibly alleges that the three entities, through their executives, made the misleading declarations with knowledge of their falsity.”

Wide-Ranging Legal Fight

The ruling letting civil claims advance under the Racketeer Influenced and Corrupt Organizations Act is the latest twist in the wide-ranging legal battle between the billionaire Alix, a major player in the corporate restructuring world, and McKinsey, the largest management consulting firm by revenue.

McKinsey has spent tens of millions defending itself in multiple courts against Alix’s claim that its bankruptcy consulting business, which launched in 2001, involved widespread abuse of the legal process. The allegations led to a Justice Department probe that McKinsey settled in 2020 by agreeing to drop its pursuit of fees worth up to $8 million.

Furman’s Aug. 18 decision came 10 months after the US Supreme Court declined McKinsey’s invitation to take up the case and shut it down. The high court left intact a ruling by the US Court of Appeals for the Second Circuit, which had reinstated Alix’s claims in January 2022.

After the dispute returned to the US District Court for the Southern District of New York, where it began in 2018, Alix filed an amended complaint accusing McKinsey and nine executives of conspiring to win 14 bankruptcy consulting assignments by concealing conflicts of interest in court disclosures.

The suit alleged RICO violations based on several predicate acts, including bankruptcy fraud, obstruction of justice, and conspiracy.

Fraudulent Intent

Furman dismissed some of those theories—including claims based on witness tampering and money laundering—but let the core case proceed in a 60-page ruling.

The allegations make it plausible that McKinsey executives “knew they were concealing connections in its bankruptcy disclosures, thus raising a strong inference of fraudulent intent,” the judge wrote. “Needless to say, that does not mean that Alix will be able to prove the claims.”

Alix is represented by Cadwalader, Wickersham & Taft LLP.

McKinsey is represented by Kobre & Kim LLP and Debevoise & Plimpton LLP. Sternfels and two other executives are represented by Kramer Levin Naftalis & Frankel LLP. Barton is represented by Driscoll & Redlich. Other executives are represented variously by McDonald Hopkins LLC, Spears & Imes LLP, Glenn Agre Bergman & Fuentes LLP, and Kellogg, Hansen, Todd, Figel & Frederick PLLC.

The case is Alix v. McKinsey & Co., S.D.N.Y., No. 18-cv-4141, 8/18/23.