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U.S. Justice Department spokesperson declined to comment on media reports about a criminal investigation into McKinsey and Co.

EMON HASSAN/The New York Times News Service

A global consulting company formerly headed by Canada’s new ambassador to China is reportedly under criminal investigation into allegations that it concealed conflicts of interest while advising bankrupt companies.

The investigation by U.S. federal prosecutors and a separate one by the U.S. Trustee Program, a unit of the Justice Department that oversees the administration of bankruptcy cases, cover the period when Canada’s Beijing envoy, Dominic Barton, was the global managing partner of McKinsey & Co. There is no indication that Mr. Barton himself is under investigation.

Mr. Barton served as CEO of the elite consulting giant for nine years and left the top job in July 2018, but stayed on as global managing partner emeritus until Sept. 4 this year when Prime Minister Justin Trudeau named him as Canada’s new ambassador to China.

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The New York Times and Wall Street Journal cited unnamed U.S. prosecutors in New York and sources in the U.S. Justice Department, who said that McKinsey & Co. is the subject of a probe over whether it broke Chapter 11 bankruptcy rules. This includes, according to the New York Times, whether McKinsey “quietly steered valuable assets to itself or favoured its own clients over other creditors."

U.S. Justice Department spokesperson Nichole Navas Oxman declined to comment on media reports about a criminal investigation into McKinsey and Co. The office of Foreign Affairs Minister Chrystia Freeland declined to say whether she is concerned about this probe.

Court battles over bankruptcy cases have cost McKinsey & Co. millions of dollars in penalties imposed by the U.S. bankruptcy watchdog including a US$15-million settlement in February over “disclosure deficiencies.” Late last year, McKinsey & Co. paid another US$17.5-million in a bankruptcy case involving renewable energy company SunEdison and promised to improve its disclosure protocols.

One of these U.S. court battles could see the Canadian ambassador to China called to testify about his former firm’s work on bankruptcy cases.

Jay Alix, the wealthy founder of restructuring giant AlixPartners, has spent the past three years pursuing McKinsey & Co., including Mr. Barton, in courts throughout the United States.

He blames Mr. Barton for failing to take corrective action on bankruptcy files while he was running the company, and his court actions have personally embroiled the former McKinsey head in ongoing legal matters.

On Oct. 29, a bankruptcy judge in a Texas coal bankruptcy case gave Mr. Alix the right to demand documents from McKinsey and question its executives under oath.

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David Jones, a Houston judge, had told the court in January he “going to need to hear" from Mr. Barton personally rather than through a written deposition. “You get the truth by swearing people in, and put them on the stand, and you subject them to cross examination, and we figure what the truth is,” the judge said.

Daniel Lemisch, a lawyer for Mr. Alix, said he believes it’s likely the court will subpoena Mr. Barton. The case goes to trial in February 2020.

“Dominic Barton was the head of McKinsey at the time that the alleged improprieties took place in their disclosures,” Mr. Lemisch said.

McKinsey’s head office in New York did not immediately respond to a request for comment Tuesday.

Mr. Barton would not be covered by diplomatic immunity in this case because the investigation covers events in the United States, before he became ambassador to China.

Mr. Alix has provided the courts and media, including The Globe and Mail and New York Times, with transcripts of conversations he had with Mr. Barton over a 14-month period beginning in September, 2014. He alleges that Mr. Barton admitted to breaking bankruptcy laws, promised to get out of the bankruptcy business and later reneged and offered to steer consulting business to AlixPartners – a statement Mr. Alix saw as an attempted bribe.

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Mr. Barton told The New York Times in March that Mr. Alix misconstrued what he actually meant.

“I was getting so fed up with his repetitive complaints that I said something like, ‘Jay, there are plenty of opportunities in the transformation service sector – apart from bankruptcy companies – that AlixPartners should see,” Mr. Barton told the Times.

In January of this year, a federal judge in Virginia reopened a bankruptcy case involving coal producer Alpha Natural Resources after learning that McKinsey & Co. had not disclosed, as required by law, that it was among the company’s secured creditors through MIO Partners, a US$25-billion investment fund for current and former McKinsey partners. The court heard that the head of McKinsey’s bankruptcy practice was also a member of MIO’s board.

The Wall Street Journal also reported Tuesday that prosecutors are examining McKinsey’s investment unit, MIO Partners. MIO held undisclosed stakes in hedge funds in roughly half of the bankruptcy cases it worked on between 2002 until the end of 2016.

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