A former director of McKinsey & Co told a court on Thursday that Galleon hedge fund founder Raj Rajaratnam paid him US$1.75 million in exchange for tips on clients of the consulting firm, giving prosecutors potentially more ammunition in the insider-trading case.
Anil Kumar, the former McKinsey executive, pleaded guilty to fraud and conspiracy in Manhattan federal court. Prosecutors told how Kumar arranged to have an overseas entity receive payments from Rajaratnam through a Swiss bank account.
The money was then invested in Galleon under the name of a worker in Kumar’s household. Kumar made US$2.6 million in illicit profits from this arrangement, including the US$1.75 million paid by Rajaratnam, the prosecutors said.
PHOTO: BLOOMBERG
Based on information from Kumar, the Galleon manager traded in Advanced Micro Devices Inc in 2006 and 2008 and eBay Inc in 2008, prosecutors said.
Rajaratnam’s lawyer, John Dowd, said in a statement that his client “did not make payments to Mr Kumar or anyone else in return for providing inside information.”
Rajaratnam and Kumar met in the 1980s when they both attended the Wharton School of Business at the University of Pennsylvania.
Later a star at McKinsey, whose ranks have produced some of the best-known executives in corporate America, Kumar had been advising technology clients on business strategies, including potential acquisitions, since 1997.
Kumar, who is free on US$5 million bail posted when he was arrested on Oct. 16, said in court on Thursday that he had conversations with Rajaratnam from 2003 to last year. Some of those discussions were recorded in wiretaps by the FBI, tactics usually used in organized crime investigations.
“I understood Mr Rajaratnam was going to trade securities. I understood that my conduct was unlawful,” Kumar told US District Court Judge Denny Chin, pausing at times to compose himself.
He could face up to 25 years in prison when he is sentenced on March 26.
When Kumar was arrested in October, McKinsey said it was “distressed.” On Thursday, a spokesman for McKinsey said it had “no further comment at this time.”
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