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McKinsey & Company, a consulting firm whose conduct in bankruptcy cases has already drawn the attention of two judges, was accused yesterday before a third judge of improperly receiving and concealing payments from a client on the verge of bankruptcy, the New York Times reported. This raised the prospect that the judge overseeing the case could order the return of tens of millions of dollars in fees earned by the consulting company. Signs that something could be wrong at the client company, SunEdison, began to surface after its board hired an outside firm to investigate unrelated employee claims that managers were misstating cash flows. The outside company, FTI Consulting, described an email exchange between a McKinsey consultant and a SunEdison executive, discussing how McKinsey was going to be paid for the work it had already done for the company. Ultimately, there was an agreement that McKinsey would not keep billing SunEdison itself; instead, it would call back its unpaid bills and redirect them to four solar-energy projects that SunEdison had set up for various customers. But there was a problem: McKinsey had not done any work for them. The accusations against McKinsey were contained in a pleading filed yesterday in bankruptcy court in Manhattan by a SunEdison creditor who has made a series of accusations of misconduct against McKinsey. The creditor, the retired turnaround specialist Jay Alix, asserted to Judge Stuart M. Bernstein that McKinsey had used the four projects — whose financing was separate from that of SunEdison and would not be affected by the bankruptcy — to remove any risk of the court finding out that McKinsey pulled money out of the company just before it went bankrupt.

A duo of bankruptcy judges jointly ordered a long-brewing feud over McKinsey & Co.’s conflict disclosures to mediation, a last resort before commencing a trial that could put several of the firm’s senior partners on the witness stand, WSJ Pro Bankruptcy reported. During a hastily scheduled status conference yesterday, Judge Kevin R. Huennekens of the U.S. Bankruptcy Court in Richmond, Va., said that he hoped a mediator would help hasten a resolution of the conflict between McKinsey and AlixPartners LLP founder Jay Alix, who has accused McKinsey of defrauding the courts by hiding significant conflicts of interest. Judge Huennekens is working in consultation with Judge David Jones of the U.S. Bankruptcy Court in Houston, who is presiding over another case in which McKinsey’s disclosures have been criticized by both Alix and the U.S. Trustee’s Office, a unit of the Justice Department that polices the bankruptcy system.

A judge in Virginia reopened a more than two-year-old case yesterday to consider accusations that the powerful consultancy McKinsey & Company had defrauded his court while advising a bankrupt coal company, the New York Times reported. “These are some of the most serious allegations that I have ever seen,” said Bankruptcy Judge Kevin R. Huennekens of the U.S. Bankruptcy Court for the Eastern District of Virginia. The decision to reopen the bankruptcy case of Alpha Natural Resources was the latest in a series of court actions and legislative maneuvers meant to examine whether McKinsey has failed to disclose investments in the entities it helps reorganize — an arrangement that could allow the company to profit off the plan it helped put in place. The request to reopen came from a retired turnaround specialist, Jay Alix, and was supported by the Justice Department’s Office of the U.S. Trustee. McKinsey has denied wrongdoing. “We continue to stand by our disclosures, which have always fully complied with the law, and we are confident that Alix’s fraud claims will be exposed as completely meritless,” the company said. McKinsey already faces similar claims of misconduct from Mr. Alix in the bankruptcy of another energy company, Westmoreland Coal, in Texas.

The Oregon Government Ethics Commission has accused former Oregon First Lady Cylvia Hayes of using her bankruptcy proceeding to drag out a resolution of her ethics case months longer than needed, the Associated Press reported. Carolyn Wade, a senior assistant attorney general representing the commission, made the claim in a Dec. 31 filing in Hayes' bankruptcy proceeding. Hayes filed for chapter 13 bankruptcy in July 2018. In addition to up to $110,000 in possible civil penalties from 22 ethics violations, Hayes has a more than $124,000 judgment against her for a public records lawsuit The Oregonian won. Wade said the bankruptcy proceeding is meritless. The ethics commission ruled in January 2018 — six months before Hayes filed for bankruptcy — that she violated state ethics laws by using her position for the financial benefit of herself and her business. Many of the violations centered around Hayes' work on environmental consulting contracts while also involved as an unpaid adviser who did energy policy work in Gov. John Kitzhaber's office.

A Westerville lawyer has been suspended by the Ohio Supreme Court for having a sexual affair with a client and failing to file her bankruptcy case, the Columbus Dispatch reported. Robert Leon received a one-year suspension of his law license, with six months stayed, in a 5-2 decision issued yesterday . The justices found that Leon accepted $1,850 in cash for legal fees and costs to file a 2015 bankruptcy case on a couple’s behalf, but did not deposit the money in a client trust account and never filed the action. After exchanging texts of a sexual nature that sometimes numbered up to 100 a day, the lawyer began a months-long consensual sexual affair with the woman who, with her husband, had retained Leon. Due to Leon’s failure to file the bankruptcy case, the Urbana couple’s home was foreclosed upon and one of their cars was repossessed, the court said in its ruling. Read more.

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