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McKinsey & Co. defrauded the courts and the U.S. government by failing to disclose conflicts of interest, including one with Whitebox Advisors LLC that affected six bankruptcy cases, according to a court filing from a fund owned by Jay Alix, the founder of competitor AlixPartners LLP, Bloomberg News reported. "McKinsey committed a massive fraud on both the court and the Department of Justice by unlawfully concealing its disqualifying connections," according to court papers filed by Alix Thursday in the 2015 bankruptcy of Alpha Natural Resources Inc., where McKinsey gave the coal company restructuring advice. Alix has in a separate lawsuit also accused McKinsey of racketeering related to the same conflicts of interest. McKinsey said in a statement that Alix is attempting to undermine settled bankruptcies and push McKinsey out of the market to gain a competitive edge for AlixPartners.

Rep. Christopher Collins’ (R-N.Y.) enthusiasm for Innate Immunotherapeutics, the tiny biotech firm, led to his indictment on Wednesday, when he and several other investors were accused of insider trading, the New York Times reported. Prosecutors said that he tipped off his son to the poor results of the company’s clinical drug trial for a notoriously intractable form of multiple sclerosis before they were public, allowing the son and others to dump their stock and save hundreds of thousands of dollars. Collins sat on the company’s board until May, and at one point was its largest shareholder. The stock scandal has rippled through Congress, where his favorite stock tip had enticed at least seven former or current House Republicans into investing along with him, his two grown children and other friends. While the other congressmen who invested in Innate were not implicated in the indictment, the allegations against Collins have revived calls for stricter rules about financial investments or corporate board seats held by members of Congress while they are sitting on committees with oversight into those businesses.

The Justice Department unit that oversees the nation’s bankruptcy system wants to reopen a 2015 case so it can investigate whether conflicts of interest at McKinsey & Co. tainted its work as an adviser to Alpha Natural Resources, a coal mining giant, WSJ Pro Bankruptcy reported. The request was filed Tuesday by John P. Fitzgerald III, acting U.S. Trustee in the Eastern District of Virginia, and asked Judge Kevin Huennekens, who heard Alpha’s chapter 11 case, to reopen it. The Trustee cited new information showing that a McKinsey retirement portfolio had a publicly undisclosed stake in a hedge fund that held Alpha debt and received some of its prime assets in the reorganization. That investment by McKinsey, a $110 million stake in a fund managed by Whitebox Advisors, gave it an undisclosed financial interest in the outcome of six bankruptcy cases in which the company served as an adviser. Read more. 

In related news, McKinsey & Co. urged a Manhattan federal judge to dismiss turnaround veteran Jay Alix’s lawsuit claiming the consulting firm operates as a “criminal enterprise” by hiding conflicts of interest in its bankruptcy and restructuring operations, Reuters reported. In a Monday night court filing, McKinsey labeled Alix’s May 9 lawsuit “the litigation equivalent of a thermonuclear device,” bereft of support for its “stark allegations of fraud” or to show any scheme to harm the firm he founded, AlixPartners. Alix’s lawyer Sean O’Shea rejected McKinsey’s defenses. Read more. 

Law firms stand out in a corporate landscape where rainmakers accused of bad behavior often receive second and third chances, according to interviews with dozens of lawyers, legal recruiters, consultants and leaders at some of the country’s largest firms, the Wall Street Journal reported. As demand for work from the biggest law firms has softened since the financial crisis, poaching top partners has become one of few ways to boost revenue. Many firms ask about prior complaints in new-hire questionnaires but do nothing to vet the answers, lawyers say. Firms rarely ask partners for references at their old firm, for fear of alerting competitors a star lawyer is in play. “It can be particularly difficult to find out about misconduct in the legal industry,” said Christine Chung, a partner at New York-based law firm Selendy & Gay who has been involved with hiring lateral partners from big law firms for almost a decade. “If the person left the old firm for a bad reason, you may not figure it out.”