Rajaratnam cheered, paid $1mn for tip, trial hears

A disgraced former McKinsey & Co partner testified that hedge fund manager Raj Rajaratnam paid him a USD 1 million "bonus" for tipping him about an acquisition by chip-maker Advanced Micro Devices Inc, a client of the consulting firm.

Anil Kumar told jurors on Monday that he supplied confidential details about AMD's 2006 purchase of graphics chip-maker ATI Technologies to Rajaratnam, who is on trial on criminal charges of running a vast insider trading network.

"He called me at home and he said, 'I just wanted to thank you. That was fantastic, we are all cheering you at the office right now,'" Kumar testified in Manhattan federal court. "That made me very nervous. I was worried if there was a lot of champagne flowing in the office."

Sri Lankan-born Rajaratnam, 53, is accused of making USD 45 million in illicit profit between 2003 and March 2009. The case is the biggest Wall Street insider trading case since speculator Ivan Boesky and junk bond financier Michael Milken were prosecuted in the mid-1980s.

Rajaratnam, founder of the Galleon Group hedge fund and once named one of the richest people in the United States by Forbes magazine, has pleaded not guilty and vowed to clear his name.

The prosecution wants to show the jury that Rajaratnam received inside tips supplied by high-ranking friends in corporate America. His friends included Kumar and Rajiv Goel, a former Intel Corp treasury group executive who like Kumar has also pleaded guilty and agreed to testify for the government.

Indian-born Kumar, 52, began his testimony on Thursday. He has yet to be cross-examined by Rajaratnam's defense team.

Kumar said he "nearly fell off my chair" when Rajaratnam paid him USD 1 million for information on AMD's USD 5.4 billion buyout of ATI. The deal was announced in July 2006 and completed three months later. Rajaratnam made more than USD 20 million on his trades, according to the government.

The case has embarrassed McKinsey, an elite management consultancy. At its annual partner meeting in Washington this week, global managing director Dominic Barton is expected to speak with partners about the trial and the separate civil charges against former McKinsey top executive Rajat Gupta, the Financial Times reported. McKinsey itself has not been charged with any wrongdoing.

Kumar also described how at one point Rajaratnam mailed him confidential documents about product plans of Intel, the main competitor to AMD.

"I was terrified at having such documents in my office. It was clearly inappropriate," he testified. "I asked my assistant to shred it."

Kumar said Rajaratnam did not tell him in advance that he was sending the documents on Intel, or where he got them.

Phope taps 

Nineteen out of 26 people charged in the Galleon case have pleaded guilty, a probe marked by the wide-scale use of phone taps. Digital recordings of Rajaratnam's conversations with Kumar, Goel and a former Galleon employee Adam Smith were played to the jury last Thursday.

While Kumar testified under questioning by federal prosecutor Jonathan Streeter, Rajaratnam sat on a chair behind the defense table, listening and occasionally writing on a legal pad. During a 15-minute break from testimony, an unidentified friend approached Rajaratnam and shook his hand.

Kumar told jurors that he received USD 125,000 installments of hidden payments in 2005 from Rajaratnam in the name of Kumar's housekeeper. He said Rajaratnam began pressing him for specific AMD financial information, instead of "inputs" from "big picture" strategy meetings Kumar was invited to attend by then-AMD Chief Executive Officer Hector Ruiz.

"He wanted to move to an arrangement where he could monitor the benefits and share the profits," Kumar testified. "I was a consultant at heart and the fact that seeing shares being bought seemed like an even bigger crime to me."

Manhattan US Attorney Preet Bharara, who has described insider trading as "rampant" as his office prosecuted the case, attended part of Monday's proceeding.