A former McKinsey & Co director told a court on Thursday that Galleon hedge fund founder Raj Rajaratnam paid him $1.75 million in exchange for confidential information on clients to make illegal stock trades.

Anil Kumar, the former management consultant executive, made the statement in pleading guilty to conspiracy to commit securities fraud and securities fraud in Manhattan federal court, the seventh person to do so in what U.S. prosecutors have called the biggest hedge fund insider trading case ever in the country.

Prosecutor Jonathan Streeter told the judge that Kumar, 51, made $2.6 million in illicit funds from his dealings with Rajaratnam, $1.75 million paid by Rajaratnam and illegal profits from trades in Advanced Micro Devices Inc .

I understood Mr. Rajaratnam was going to trade securities, Kumar told U.S. District Court Judge Denny Chin. I understood that my conduct was unlawful.

Kumar, who is free on $5 million bail posted when he was arrested on October 16, said in court that he had conversations with Rajaratnam from 2003 to 2009.

He could face as many as 25 years in prison. Kumar is cooperating with the government's investigation, the prosecutor said in court.

According to U.S. prosecutors and a civil complaint by the U.S. Securities and Exchange Commission, Kumar shared inside information in August 2008 about transactions involving Advanced Micro Devices and two Abu Dhabi entities with Rajaratnam, who then traded on the information.

On October 7, 2008, AMD said it would spin off manufacturing operations through a multibillion dollar venture with the Advanced Technology Investment Co of Abu Dhabi.

AMD stock opened 25 percent higher that day, resulting in millions of dollars of illegal profits for Rajaratnam, Kumar and others, prosecutors said.

Kumar also tipped the hedge fund manager over an acquisition of ATI Technologies Inc by AMD in 2006, prosecutors said in court on Thursday. In court papers, Rajaratnam's lawyers have said information on that deal was public knowledge.

Twenty-one people, including employees of some of America's biggest companies including IBM Corp and Intel Corp , have been criminally or civilly charged in the case.

Rajaratnam, a Sri Lankan-born U.S. citizen, has pleaded not guilty and vowed to fight the charges. He is free on bail.

On Tuesday, prosecutors said they plan to file more charges against 52-year-old Rajaratnam, saying he made $36 million in illegal profits from insider trading, more than double the amount previously alleged.

A bail hearing is set for January 12. The government wants to detain Rajaratnam, who has asked for his bail to be reduced to $20 million from $100 million.

In a court filing on Thursday, his lawyers called far-fetched and preposterous the government's claim that he poses a serious risk of flight.

It is true that Mr. Rajaratnam is wealthy, though not a billionaire, as the government and press persistently claim, but this fact cannot justify the imposition of excessive and stigmatizing bail, his lawyers said.

The cases are USA v Rajaratnam et al, U.S. District Court, Southern District of New York, No. 09-01184; USA v Goffer et al in the same court, No. 09-mj-02438, and SEC v Galleon Management LP et al in the same court, No. 09-cv-08811.

(Reporting by Grant McCool; Editing by Tim Dobbyn)