Professor Stephen Lubben Quoted in The Economist on Racketeering
McKinsey manages to get itself sued for racketeering
Mobsters,gangsters and bent cops have all been tried under America’s Racketeer Influenced and Corrupt Organisations (RICO) Act. Might consultants be next? McKinsey, a management consultancy, is being sued under the law by Jay Alix, the founder of AlixPartners, a competitor in the field of bankruptcy advice. Mr Alix alleges that McKinsey knowingly misled courts in order to land clients. The firm denies any wrongdoing.
Bankruptcy is lucrative, for those doling out the advice. According to Debtwire, a data provider, corporate bankruptcies generated $1.3bn in fees in 2016, with lawyers taking home over half, and the rest going to consultants, accountants and financiers. McKinsey is a relative newcomer: it set up its restructuring arm, which turns around companies in financial distress, in 2010. Though its share of the market is smaller than those of the top players, AlixPartners and Alvarez & Marsal, its entry has stiffened competition. Its clients have included American Airlines, Puerto Rico and a number of energy companies.
Mr Alix has said he wants to ensure all advisory firms operate on a level playing field. But some wonder if the RICO suit, originally designed to litigate against criminal organisations, is being used to grab headlines. Nor is it clear how Mr Alix can prove his firm was deprived of work.
Even if it had made more disclosures, says Stephen Lubben, a law professor at Seton Hall University, McKinsey may not have been disqualified all the time; and if it had been disqualified, AlixPartners may not have snapped up all the work. Court cases, just like bankruptcy advice, can be messy.
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