A disgraced former partner at McKinsey & Co told jurors he leaked stock tips about the elite consulting firm's clients to Raj Rajaratnam, in dramatic testimony at the biggest U.S. insider trading trial in years.
Anil Kumar is the first of several of the hedge fund founder's former friends to testify for the government at the high-profile trial in New York. Jurors on Thursday also for the first time heard the voice of Rajaratnam, captured on FBI wiretaps in conversations that prosecutors argue show he traded illegally on company secrets.
Kumar has admitted accepting $1.75 million from Rajaratnam, a one-time billionaire, in exchange for supplying tips on McKinsey clients, including chipmaker Advanced Micro Devices.
On the witness stand, he recounted that the Galleon Group hedge fund founder told him: You work very very hard. You are underpaid. People are making fortunes ... so just keep track of your knowledge and share it with me.
The Sri Lankan-born Rajaratnam, free on bail since his October 2009 arrest, is accused of creating a network of tipsters who fed him inside information that gave him an unfair advantage over other stock traders. His trial is the signature case in an insider trading probe that has shaken the secretive $1.9 trillion hedge fund industry.
Kumar stared straight ahead when he arrived in the courtroom, avoiding Rajaratnam's gaze. Rajaratnam took notes on a white legal pad throughout Kumar's testimony.
Earlier, jurors heard wiretapped conversations of Rajaratnam speaking with Kumar and others. Rajaratnam's lawyers failed last year to suppress the FBI recordings. The case stands apart from past insider trading probes because of the broad use of wiretaps, law enforcement tools traditionally used to crack down on organized crime groups.
On the recordings, Rajaratnam is heard speaking rapidly in a high-pitched voice, rattling off numbers and acronyms for companies.
The jury heard an October 2008 phone call in which Rajaratnam spoke with former Intel executive Rajiv Goel, who also has pleaded guilty and agreed to testify for the government.
Prosecutors say Rajaratnam placed trades on behalf of Goel in a brokerage account, based on information Rajaratnam obtained from a PeopleSupport board member about Essar/Aegis's acquisition of the company in August 2008 and the closing of the deal that October.
And I know the deal's gonna get done at $12.25, which is three bucks above, right? Rajaratnam is heard asking. Goel replies: Right.
Then Rajaratnam can be heard saying: We know because one of our guys is on the board. We know they are gonna put $41 million in escrow. It's a $250 million deal.
On cross-examination of FBI agent Diane Wehner, the first witness to testify, Rajaratnam's defense argued that Rajaratnam relied on public information and expert analysis and did not break insider trading laws.
Defense lawyer Terence Lynam asked Wehner: You did not know if what Mr. Rajaratnam was talking about ... was learned through the stock research that Galleon did, correct?
Wehner responded: Correct.
In another call from May 2008 that was played for the 12 jurors, Rajaratnam is heard talking with one-time employee Adam Smith.
Rajaratnam asks Smith how the market is treating him and Smith answers: Like a baby treats a diaper. Rajaratnam giggles and the two men go on to discuss Vishay Intertechnology Inc, a company prosecutors cited in charges against both men.
The government contends that Smith and Rajaratnam conspired to obtain secret information about a potential acquisition of Vishay. As it turned out, Vishay was never acquired.
The case is USA v Raj Rajaratnam et al, U.S. District Court for the Southern District of New York, No. 09-01184.
(Editing by John Wallace, Maureen Bavdek and Steve Orlofsky)