Former McKinsey & Co. partner Anil Kumar provided “extraordinary” cooperation as a government witness against hedge-fund manager Raj Rajaratnam and former Goldman Sachs Group Inc. director Rajat Gupta, prosecutors said.
At Rajaratnam’s trial last year, Kumar’s testimony “was nothing short of devastating,” prosecutors said today in a letter to Denny Chin, the federal judge who is scheduled to sentence Kumar July 19. Kumar pleaded guilty to participating in an insider-trading scheme with Rajaratnam.
In June, Kumar told a jury how Gupta, his former mentor, teamed up with Rajaratnam, co-founder of the Galleon Group LLC hedge fund, in 2006 to try to raise $2 billion for an investment fund. Gupta and Rajaratnam were both convicted.
“Kumar’s cooperating with the government was absolutely essential in two of the most important securities fraud trials in history,” assistant U.S. attorneys Reed Brodsky and Richard Tarlowe said in the letter.
The prosecutors said they only needed two in-person meetings after Kumar’s October 2009 arrest before he agreed to sign a cooperation deal, providing evidence against Rajaratnam and others tied to Galleon, as well as telling the U.S. about his own “extensive criminal conduct,” which the government hadn’t previously been aware of.
“From the first day of Kumar’s cooperation through the present, he’s been one of the best and most important cooperating witnesses” for the Manhattan U.S. attorney’s securities fraud unit, Brodsky and Tarlowe said.
Few other people ensnared in the insider-trading investigation tied to Rajaratnam have cooperated with the U.S., the prosecutors said.
“In the world of Rajaratnam and his co-conspirators, cooperation was sadly viewed as a fundamental breach of trust to one another, and cooperators were viewed by many Galleon employees and other members of Rajaratnam’s criminal schemes as ‘ratting out’ a trusted friend,” Brodsky and Tarlowe said.
Rajaratnam and his cohorts “apparently believed it was better to go to jail than breach their criminal partnership,” they added. Kumar’s testimony against Gupta “directly and substantially undermined Gupta’s defenses,” they said.
Gupta, who was convicted of securities fraud and conspiracy in June, is awaiting sentencing. Rajaratnam is serving an 11- year prison term in a federal medical facility in Massachusetts.
The prosecutors said their investigation into criminal wrongdoing at Galleon has been slowed by the failure of others to cooperate.
“There remain active, ongoing criminal investigations of former Galleon employees that, although moving forward in a deliberate manner, would have been undoubtedly accelerated had additional Galleon employees agreed to cooperate,” Brodsky and Tarlowe said.
Kumar, who worked at McKinsey from 1986 until November 2009, pleaded guilty in January 2010, to one count of conspiracy and one count of securities fraud. Under the statutes, conspiracy is punishable by as long as five years in prison while securities fraud carries a maximum term of as long as 20 years in prison. Kumar also agreed to pay $2.6 million in forfeiture.
At Rajaratnam’s trial, Kumar testified that he passed information about some of his clients, including Advanced Micro Devices Inc. (AMD:US)’s deal to sell chips to Hewlett-Packard Co. (HPQ:US), and a second deal about AMD’s acquisition of ATI Technologies Inc.
Prosecutors said Kumar became co-opted by “Rajaratnam’s corrupt world,” and the praise the billionaire fund manager gave him as well as money he received in offshore accounts.
Greg Morvillo, a lawyer for Kumar, didn’t return a voice- mail or an e-mail message seeking comment about the case.
Adam Smith, a former Galleon fund manager who pleaded guilty and testified against Rajaratnam, was sentenced in June to two years’ probation after prosecutors called him a “key” cooperating witness. He was sentenced by U.S. District Judge Jed Rakoff, who presided over Gupta’s case. Gupta is scheduled to be sentenced Oct. 18.
Kumar testified in June that Gupta approached him in 2006 saying he wanted to start an investment fund after his scheduled retirement from McKinsey in 2007. Kumar said Gupta sought out Rajaratnam, who was Kumar’s classmate at the University of Pennsylvania’s Wharton School, because of his expertise as a prominent hedge fund manager.
The case is U.S. v. Kumar, 10-cr-13, U.S. District Court, Southern District of New York (Manhattan).
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