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McKinsey & Co.’s role as confidential adviser to the world’s most influential companies is complicating its effort to win lucrative work with some of the most troubled, the Wall Street Journal reported today. The Justice Department recently objected to bids by McKinsey’s restructuring arm — Recovery & Transformation Services — to work on the chapter 11 cases of coal-mining firm Alpha Natural Resources Inc. and solar-project developer SunEdison Inc. The problem: McKinsey isn’t naming clients on its long list of business relationships that might create conflicts of interest. McKinsey said in court filings that it isn’t aware of any conflicts of interest, but that it may have worked, or currently works, with the bankrupt companies’ creditors, lenders, shareholders or others involved in the cases, all of whom could potentially have interests that are adverse to the companies now seeking the firm’s guidance. The two cases’ U.S. Trustees each separately criticized those statements as “vague and amorphous.” Without such disclosures, a judge can’t weigh whether a firm’s connections will keep it from being an unbiased advocate for its client, according to David Skeel, a University of Pennsylvania Law School professor. Court hearings to review the criticism are set for the coming weeks.

U.S. Trustee William K. Harrington challenged SunEdison’s application to employ turnaround consultant McKinsey Recovery & Transformation Services in its chapter 11 case Thursday, telling a New York bankruptcy court that the government needs more information to determine if a possible conflict of interest could bar the hire, Law360 reported on Friday. Harrington said that the application to retain McKinsey doesn’t comply with disclosure requirements under the U.S. Bankruptcy Code and includes “numerous vague and amorphous connections to creditors and other major parties in interest.” Based on the current filings, Harrington said that the government cannot determine whether a potential conflict of interest exists.

Bankruptcy Judge Kevin R. Huennekens has ruled that Alpha Natural Resources can break its contract with the United Mine Workers union and modify its retiree health care plan, the Charleston (W.Va.) Gazette-Mail reported yesterday. Judge Huennekens granted Alpha’s motion on the UMW contract and retiree health care benefits after a hearing in Richmond on Monday. UMW President Cecil Roberts said that the union is still trying to work out some sort of deal with Alpha, but suggested UMW members might walk off the job if acceptable terms aren’t reached. “We are trying to reach an agreement with the company to resolve this issue, but if we are unable to do that we will have to examine our options,” Roberts said. Bankrupt Alpha had asked the court in March to relieve it of its contract with the mine workers and its obligation to pay UMW retiree benefits. The company said that it needs to slash costs to survive what it called “the historic collapse of the domestic coal industry,” citing “a confluence of macroeconomic headwinds, regulatory obstacles and competitive pressures” that have forced numerous bankruptcies and cost thousands of miners their jobs. Read more. 

In related news, federal officials are objecting to a coal company's plan to restructure and emerge from bankruptcy, because, they say, it looks a lot more like a plan to liquidate, WyomingPublicMedia.org reported yesterday. The U.S. Trustee Program is skeptical of the reorganization plan that Alpha Natural Resources filed in March. In court documents, the U.S. Trustee writes that although the plan was presented as a reorganization, the fact that Alpha is planning to sell off its most valuable assets, including its mines in Wyoming, makes the plan look more like a liquidation. Alpha does not explain how the company will operate once it sells off these core assets, and the U.S. Trustee says that there is no information about how the company that remains will generate income. Read more. 

Experts are set to discuss labor issues in coal cases on a FREE abiLIVE webinar on June 2. Click here to register! 

Bankruptcy Judge Barbara Houser ruled yesterday that Dallas entrepreneurs Sam and Charles Wyly committed tax fraud when they created a series of offshore trusts in the Isle of Man in the 1990s to shield more than $1 billion for the family tax-free, the Dallas Morning News reported today. Judge Houser said in her ruling that there is “clear and convincing evidence” that the “heart of the Wyly offshore system had been established through deceptive and fraudulent actions.” The ruling means that Sam Wyly will be required to pay the IRS as much as $1.4 billion in back taxes and penalties. At the same time, Judge Houser ruled that Charles Wyly’s widow, Dee, “is innocent of any wrongdoing.” The fact that Dee Wyly “did not know the details of what Sam and Charles had done offshore is clear,” Houser wrote.

A large New York law firm that once represented the now-imprisoned Texas financier Allen Stanford has reached a $35 million settlement with victims of his estimated $7.2 billion Ponzi scheme, Reuters reported yesterday. Chadbourne & Parke entered the accord on Feb. 25, two weeks before a federal appeals court said the firm and Proskauer Rose, which also represented Stanford, were immune under Texas law from liability for the victims' losses. The settlement was discussed in a filing last week with the federal court in Dallas. Roughly 18,000 of Stanford's former investors had sued both Chadbourne and Proskauer over work done for the swindler by Thomas Sjoblom, a lawyer who worked at both firms. Investors said the firms turned a blind eye to Stanford's sale of fraudulent high-yield certificates of deposit through his Antigua-based Stanford International Bank, and obstructed a related U.S. Securities and Exchange Commission probe. Stanford is serving a 110-year prison term after being convicted of fraud in March 2012. His scheme surfaced in 2009. The Chadbourne settlement resolves claims by Ralph Janvey, a court-appointed receiver for Stanford's companies, and by a committee of Stanford investors helping him recover money for creditors. Read more.

For further analysis of commercial fraud, make sure to pick up a copy of ABI’s Fraud and Forensics: Piercing Through the Deception in a Commercial Fraud Case.