Money for inside information ended up in Bermuda, says Kumar
NEW YORK (Reuters) - A man who admitted taking money from Galleon hedge fund founder Raj Rajaratnam in exchange for inside information said the funds were funnelled back to a Galleon account in Bermuda.
Former McKinsey & Co partner Anil Kumar admitted accepting $1.75 million from Rajaratnam for information on the consultancy’s clients in testimony at the biggest insider trading trial in decades in New York.
Kumar said Rajaratnam deposited $500,000 a year in $125,000 installments every three months to a bank account in Switzerland. The money would be reinvested in a Galleon account in Bermuda under the name of Kumar’s housekeeper.
Rajaratnam is accused of making about $45 million in illegal profit between 2003 and March 2009 through stock tips supplied by well-placed friends. Nineteen people have pleaded guilty in the probe, which shocked the hedge fund world because of the government’s widespread use of wiretaps, tactics usually deployed in organised crime cases.
Regardless of whether Rajaratnam ends up testifying at his criminal trial, jurors are going to hear a lot from him.
Testimony resumes today, with New York prosecutors expected to play more of the Galleon Group founder’s phone calls tapped by the FBI.
Federal prosecutors on Thursday played a recording of the two men, one-time business school classmates, discussing corporate information.
Rajaratnam’s trial in Manhattan federal court began last Tuesday and is expected to last at least two months. If convicted, he faces as much as 20 years in prison on the most serious charge of securities fraud.
Lead defence lawyer John Dowd told the 12-member jury in his opening statement that the government’s investigation “focused on snippets of innocent conversations taken out of context” and the information “you hear discussed on those telephone calls was public”.
A spokesman for John Dowd has declined to comment on whether Rajaratnam, 53, will testify.
Some lawyers not involved in the case say that because the government may play up to 173 audio recordings for the jury, the trial could be the rare high-profile case where the central figure takes the witness stand.
“Tactically, I think it’s going to be necessary,” said attorney Eric Fisher, of Butzel Long law firm and a former federal prosecutor. “They are going to be hearing Rajaratnam’s voice over and over again and the defence can’t rely on arguments that the government hasn’t met its burden of proof.”
Kumar is the first cooperating witness to testify for the government. In calmly delivered testimony on Friday, he described getting paid by Rajaratnam for information about deals involving chip maker, Advanced Micro Devices, a McKinsey client. When Rajaratnam’s defence lawyers cross-examine Kumar, they will seek to damage his credibility.
Indian-born Kumar, 52, has pleaded guilty to conspiracy and fraud charges in the case and will be sentenced later this year. He told the court he has been under investigation by tax authorities and owed $1 million in back taxes, which he has since paid to the Internal Revenue Service.
The Galleon probe has been embarrassing to McKinsey, which has not been accused of wrongdoing. Its former chief, Rajat Gupta, who is also the chairman of Bermuda-based Genpact, has also been ensnared in the case.
The US Securities and Exchange Commission accused Gupta of leaking Goldman Sachs secrets to Rajaratnam when he sat on the bank’s board. Gupta denies the accusations.
Prosecutors say they will present evidence of calls between Gupta and Rajaratnam. To convict, the evidence must convince the jury that Rajaratnam received information from someone who had a fiduciary duty not to disclose it.