Indian American executive says he got $1.75 million for confidential tips

NEW YORK - Anil Kumar, a former Indian-American director of McKinsey & Co, has claimed Galleon hedge fund founder Raj Rajaratnam, accused of masterminding a vast insider trading, paid him $1.75 million for confidential tips.

Kumar made the statement while pleading guilty in Manhattan federal court Thursday to conspiracy to commit securities fraud and securities fraud in what US prosecutors have called the biggest hedge fund insider trading case ever in the US.

Kumar became the seventh person to plead guilty in the case. Prosecutors said that he was initially approached by Rajaratnam in late 2003 or early 2004 and offered $500,000 a year to provide information about companies that he had access to through McKinsey.

The funds were allegedly paid by Rajaratnam and were deposited for Kumar in a Swiss bank account. Some of the money was reinvested for Kumar through an account with Galleon, prosecutors said. He was paid $1.75 million directly and earned a total of $2.6 million through his involvement with the alleged Galleon scheme.

Appearing before Judge Denny Chin, Kumar “profusely” apologised to his colleagues and friends for the “shame and embarrassment they suffered”. “To all my colleagues whose trust I have betrayed, I am sorry,” he said.

Kumar, who is free on $5 million bail posted when he was arrested on Oct 16, could face up to 25 years in prison when he is sentenced on March 26.

Kumar, who was accused of passing on information about Advanced Micro Devices, a company he advised while at McKinsey, was part of the first group of people to be charged in the insider trading investigation, which has ensnared top executives across corporate America since the first arrests were made in October.

Prosecutors said that one of Kumar’s most profitable tips related to AMD’s 2006 acquisition of ATI Technologies. The information netted Galleon $19 million and prosecutors said that after the deal Rajaratnam called Kumar a “hero”.

Rajaratnam’s lawyer, John Dowd, has denied that his client paid for information relating to that deal, arguing that he had used public information.

“Raj Rajaratnam did not make payments to Kumar or anyone else in return for providing inside information,” Dowd said.

A Sri Lankan-born US citizen, Rajaratnam has been accused of making $36 million in illicit profits through the scheme. A total of 21 people have been accused in the case and the investigation is ongoing.

Rajaratnam, free on $100 million bail, has pleaded not guilty and vowed to fight the charges and go to trial.