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Bankruptcy Headlines

McKinsey Settles With Justice Department Over Bankruptcy Disclosures

McKinsey & Co. agreed to pay $15 million to settle Justice Department allegations that the consulting firm failed to make required disclosures of potential conflicts in three bankruptcy cases it has advised on in recent years, WSJ Pro Bankruptcy reported. The settlement was struck between McKinsey and the U.S. Trustee Program, which is charged with protecting the integrity of the nation’s bankruptcy system. The amount represents “one of the highest repayments made by a bankruptcy professional for alleged noncompliance with disclosure rules,” according to the Justice Department. “McKinsey failed to satisfy its obligations under bankruptcy law and demonstrated a lack of candor with the court and USTP,” said Cliff White, director of the Trustee Program. He added that if McKinsey repeats its problematic disclosure practices, his office “will seek even more far-reaching remedies.” In a statement yesterday, a McKinsey spokeswoman said the firm agreed to the settlement so that it can move forward and focus on serving its clients. The firm didn’t admit to any wrongdoing but said the settlement process had “provided additional clarity for the filing of future disclosures.” McKinsey entered the bankruptcy advisory business in 2001 and has advised 14 companies going through the chapter 11 process over the years. Read more.

In a related New York Times analysis, McKinsey is alone among the leading consulting firms in operating the hedge fund, which invests for about 30,000 current and former McKinsey partners and other employees. McKinsey does not disclose the identity of its clients — the chief executives, prime ministers and princes who seek its counsel on management best practices. And even as the firm is privy to market-moving corporate maneuvers and confidential government information, its hedge fund’s investments are often secret, with a large part of its approximately $12.3 billion in holdings concealed behind a tangle of shell companies in an island tax haven in the English Channel. McKinsey says that the way the fund is structured and operated ensures that its employee investors do not stand to benefit from the firm’s inside knowledge and consulting advice. Hedge fund managers do not coordinate with McKinsey consultants, the firm says, and about 90 percent of McKinsey Investment Office’s capital is managed by outside funds. Read more.

Courier Company BeavEx Files for Chapter 11 Protection

Express delivery service BeavEx Holding Corp. filed for bankruptcy protection Monday and plans to sell itself to a strategic buyer, saying efforts to diversify its business after scanners reduced demand for paper-check couriers have resulted in sustained losses, WSJ Pro Bankruptcy reported. The Atlanta, Ga.-based company, which has 69 leased facilities in 31 states, has more than $50 million in liabilities, according to a filing in U.S. Bankruptcy Court in Wilmington, Del. It has 369 employees and has lined up a $1 million loan to fund its business during the case. BeavEx plans to sell most of its assets, including its Guardian Medical Logistics unit, to an affiliate of TFI International Inc., which also provides transportation and logistics services, for $7.2 million subject to better bids in bankruptcy court.

New Jersey Drugmaker Files for Bankruptcy

Immune Pharmaceuticals, a New Jersey-based biopharmaceutical company specializing in the development of treatments for immunologic and inflammatory diseases, filed for chapter 11 protection yesterday, Becker's Hospital Review reported. The drugmaker was unable to secure additional funding to keep the company afloat, prompting its decision to file for bankruptcy protection. Despite making significant progress toward the strategic transaction of its lead drug, expected to generate $3 million for the company, it was unable to negotiate terms of an agreement. In addition, Immune expected to finalize a deal with Vector Therapeutics, which was in talks to acquire Immune's Ceplene with an upfront payment of $2.5 million but the transaction never closed. During the bankruptcy process the company will wind down operations as it works to sell off its assets.

Samuels Jewelers to Close All Its Stores

Samuels Jewelers, a 112-store retailer with roots that date back more than a century, told employees on Feb. 14 that it will shut all of its stores by Feb. 25, reported. The Austin, Texas–based retail chain, which does business under the Samuels Diamonds, Rogers, Andrews, and Schubach nameplates, had filed for chapter 11 on Aug. 7. In October, it launched store-closing sales, but still hoped that a suitor would purchase its profitable stores. According to an email sent to employees and obtained by JCK, that is no longer feasible. “Until Feb. 12, we, the current management of Samuels, were very hopeful and confident that a transaction we had located would allow 60 to 64 go-forward stores and the continuation of the business under new ownership,” it said. “However, our secured lender Wells Fargo has chosen to exercise their ability to obtain, among other things, the intellectual property rights for all the consumer-facing business names…as well as the web addresses for all the brands and the unsold inventory. This effectively ensured that the transaction we were diligently pursuing…will not be possible now or in the foreseeable future.” In a Feb. 14 court filing, the company canceled a scheduled auction of its assets, saying it would go with Wells Fargo’s credit bid.

SEC Wants to Make It Easier for Companies to Explore IPOs

Any company exploring whether to go public would get greater leeway to discuss their plans privately with potential investors before announcing an initial public offering, under a proposal that securities regulators released yesterday, the Wall Street Journal reported. In a bid to boost the number of public companies, the Securities and Exchange Commission proposed letting all companies “test the waters” before deciding whether to seek an IPO. The agency had previously allowed only smaller, emerging companies to talk to investors privately. Currently, large companies must publicly file their securities offering documents to regulators before gauging investor interest. The 2012 JOBS Act allowed small companies to talk to investors before beginning that process, a provision that would be expanded to all companies — including investment firms — if Tuesday’s proposal is completed. Making it easier and more appealing for companies to go public has been a central goal of SEC Chairman Jay Clayton. The number of public companies has fallen by nearly 50 percent since the late 1990s. Several startups valued at above $1 billion, including Uber Technologies Inc. and Airbnb Inc., have held off on going public, though there are signs that some of those companies might make the move in 2019.

Commentary: Housing Is Already in a Slump, So It (Probably) Won't Cause Another Recession

The U.S. may or may not enter a recession this year, but if it does, housing is unlikely to be the cause, because it never really recovered in the first place, according to a New York Times commentary. The U.S. has had 11 recessions since the end of World War II, and all but two were preceded by a big decline in the housing market. “Housing is not in a position to lead this thing down,” said Edward Leamer, an economics professor at the University of California, Los Angeles. How much it can help prolong the overall recovery is another matter, according to the commentary. Home sales and prices have been sluggish in the face of rising interest rates. Still, the pace of construction, combined with pent-up demand from young adults, suggests that the sector should at least remain stable in the face of uncertainty elsewhere.

*The views expressed in this commentary are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI.