Rajaratnam paid for tips, ex-McKinsey man testifies

By @ibtimes on

A disgraced former McKinsey & Co partner told jurors he leaked secrets about the elite consulting firm's clients in exchange for $1.75 million in hidden payments from onetime friend Raj Rajaratnam, the main defendant in the biggest U.S. insider trading trial in years.

Anil Kumar said the Galleon 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 calmly delivered testimony for the prosecution capped a day when the Manhattan federal jury also for the first time heard the voice of Rajaratnam captured on FBI wiretaps. On the tapes, he is heard at times giggling with associates and on other occasions speaking rapidly in a high-pitched voice, rattling off numbers and acronyms for companies.

Kumar's testimony will resume on Monday.

Prosecutors say the Galleon Group founder made $45 million in illicit profit from 2003 to March 2009 through insider trading. His multimillion-dollar defense team contends that he conducted legitimate stock research and did not gain an unfair advantage over other investors.

Rajaratnam took notes on a legal pad while Kumar testified. Kumar, 52, dressed in business attire, avoided Rajaratnam's gaze.

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. His trial is the signature case in an insider trading probe that has shaken the secretive $1.9 trillion hedge fund industry.

Kumar is among 19 people who have pleaded guilty to conspiracy or fraud charges in the broad Galleon probe. He admitted accepting $1.75 million from Rajaratnam and said he tipped the onetime billionaire on deals involving McKinsey clients including chipmaker Advanced Micro Devices.

I told him there were advanced discussions both with Dell and Hewlett Packard, Kumar testified. He said Rajaratnam responded that that was very useful information.

AMD ultimately announced a pilot program with Hewlett Packard in February 2004 worth $400 million to the chipmaker.

U.S. prosecutor Jonathan Streeter projected onto courtroom screens a confidential McKinsey document that referred to computer maker HP with the code name New Hampshire.

The Galleon probe has been embarrassing to McKinsey, which has not been accused of wrongdoing. The U.S. Securities and Exchange Commission accused Rajat Gupta, the consultancy's former chief, of supplying Goldman Sachs secrets to Rajaratnam when he sat on the bank's board.

The case stands out from previous insider trading scandals -- such as those of the mid-1980s involving speculator Ivan Boesky and junk bond financier Michael Milken -- because of the government's widescale use of wiretaps.

Rajaratnam, sitting behind the defense table in the crowded courtroom, did not react to hearing the digital recordings of his mobile phone calls being played.

Along with Kumar, the recordings featured another friend-turned-government-witness, Intel Corp's Rajiv Goel, and former Galleon employee Adam Smith, who will also testify in the two-month trial.

In a May 2008 call played for the 12 jurors, Rajaratnam is heard talking with one-time employee Smith.

Rajaratnam asks Smith how the market is treating him and Smith answers: Like a baby treats a diaper. Rajaratnam laughs 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.

Kumar's testimony followed that of FBI Special Agent Diane Wehner, who described how she became familiar with Rajaratnam's voice by listening in to his conversations. But defense attorney Terence Lynam, on cross examination, pointed out that she did not know whether Rajaratnam's discussions caught on the tapes were based on Galleon stock research or not.

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 Steve Orlofsky, Gary Hill)

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