Ex-McKinsey Director Says Rajaratnam Paid For Tips

Jan 8 2010 | 3:35am ET

Former McKinsey & Co. director Anil Kumar admitted yesterday that he passed insider information to Galleon Group CEO Raj Rajaratnam, and said he was paid as much as $2 million for the tips.

Kumar pleaded guilty to one count each of securities fraud and conspiracy to commit securities fraud as part of a plea deal with prosecutors. He agreed to cooperate with the ongoing investigation of the alleged insider-trading circle, which has to date snared 21 individuals, seven of whom, including Kumar, have pleaded guilty.

At yesterday afternoon’s hearing, Kumar said Rajaratnam paid him for information about several McKinsey clients he was consulting for, including Advanced Micro Devices and an eBay subsidiary. According to Kumar, Rajaratnam offered to pay him $500,000 a year for the nonpublic information, and he ultimately received between $1.75 million and $2 million from 2004 through last year.

Kumar said Rajaratnam made the payments to a Swiss bank account under a different name and that the money was eventually invested in Galleon’s hedge funds.

Prosecutors say that Rajaratnam dubbed Kumar a “hero” for the information he provided. Rajaratnam’s lawyer, John Dowd, denied that his client had ever paid anyone for tips.

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

For his part, Kumar apologized to his colleges “for the shame they have suffered.” He faces up to 25 years in prison when he is sentenced, but will likely get off far more easily due to his cooperation.

Heroic or not, Rajaratnam was not solely relying on Kumar’s information. His co-defendant, former New Castle Partners executive Danielle Chiesi, who has also pleaded not guilty, allegedly had an AMD tipster of her own: former CEO Hector Ruiz, who has not been charged.

In any event, if the allegations against him are true, it appears Rajaratnam got his money’s worth. Prosecutors on Tuesday increased their estimate of his alleged ill-gotten gains from the scheme to $39 million.


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