Jurors heard yesterday from Anil Kumar that he was recruited by Galleon founder Raj Rajaratnam in 2004 through an improper direct cash payment that bypassed Kumar’s employer, McKinsey & Co. Kumar received $500,000 a year from Galleon to provide insider tips.
Rajaratnam used a third party and a Swiss bank account that was invested in Galleon’s funds. The account was registered to Kumar’s housekeeper.
"Once I accepted the money he got quite specific about what a company's financial performance was," Kumar said. "He was asking me for a variety of information such as what is a company's profit, their revenue, how they are doing in that quarter, if they had strategic plans. He kept asking me. I didn't always know the answer but I felt that since I accepted the money, I had a sort of obligation to him."
Kumar has already pleaded guilty in the case, and is now cooperating with prosecutors. He got to know Rajaratnam at University of Pennsylvania's Wharton School in the early 1980s. Kumar tried to recruit Rajaratnam for McKinsey, but Rajaratnam turned the tables on him and began a corrupt relationship.
"I'd much rather have you as a consultant, not McKinsey," Kumar was told by Rajaratnam. Rajaratnam said to Kumar "I know you will not remember to keep a list of ideas if you don't get money from me."
Jurors also heard the first wiretap at the heart of the prosecution’s case. Kumar was heard telling Rajaratnam about a transaction involving Advanced Micro Devices (AMD). Kumar said: "They've shaken hands. You can now just buy … You cannot go wrong. There will be such a boost from this announcement" when Rajaratnam asked whether to buy a million shares.
Two other tapes were played as Federal Bureau of Investigation Special Agent Diane Wehner was on the stand. The conversations separately involved Rajaratnam receiving inside information from former Galleon trader Adam Smith and former Intel employee Rajiv Goel, who discussed a PeopleSoft deal. Smith is a cooperating witness and Goel has already pleaded guilty in the case.
John Dowd, Rajaratnam's lawyer, pounced on the Goel tape, noting that the phone call occurred two months after the PeopleSoft deal had been announced.
Gupta Leaves Rajaratnam Private Equity Firm
Former head of McKinsey & Co Rajat Gupta is another accused Rajaratnam tipster. He also co-founded New Silk Route Partners (originally called Taj Partners) with Rajaratnam in 2006. He is now leaving the $1.4 billion partnership amid his involvement in the Galleon insider trading case. New Silk is not accused of any wrongdoing in the matter.
The SEC has accused Gupta of passing information to Rajaratnam regarding Goldman Sachs and Proctor & Gamble. Gupta is expected to give evidence against Rajaratnam at the blockbuster trial. Gupta maintains his innocence in the matter.
