Rajaratnam Lawyer Challenges Kumar’s Testimony on Insider Tips, Payments
Galleon Co-Founder Raj Rajaratnam
Jin Lee/Bloomberg
Raj Rajaratnam, co-founder of hedge fund Galleon Group LLC, right, talks on his mobile phone as he exits federal court with his attorney John Dowd, in New York on March 10, 2011.
Raj Rajaratnam, co-founder of hedge fund Galleon Group LLC, right, talks on his mobile phone as he exits federal court with his attorney John Dowd, in New York on March 10, 2011. Photographer: Jin Lee/Bloomberg
March 17 (Bloomberg) -- Douglas Burns, a former federal prosecutor, talks about the insider-trading trial of Galleon Group co-founder Raj Rajaratnam and the strategy of his defense team. Burns talks with Erik Schatzker and Lisa Murphy on Bloomberg Television's "InsideTrack." (Source: Bloomberg)
Anil Kumar, the former McKinsey & Co. partner testifying for the government against Raj Rajaratnam, was challenged by a defense lawyer over his claims that he gave the defendant inside tips including earnings information for Advanced Micro Devices Inc. (AMD) and planned employee firings at EBay Inc.
John Dowd yesterday cross-examined Kumar for a second day in Rajaratnam’s insider-trading trial in Manhattan federal court. Kumar has pleaded guilty to leaking tips to Rajaratnam, including AMD’s planned acquisition of ATI Technologies Inc. in 2006. Dowd showed Kumar press articles and e-mails discussing the possible acquisition before it was announced.
“So the deal was public,” Dowd said.
“No sir,” replied Kumar, who is on the witness stand for a fourth day.
The two men frequently talked over one each other, occasionally raising their voices toward the end of Kumar’s testimony.
Rajaratnam, 53, is on trial in the largest crackdown on hedge-fund insider trading in U.S. history. The Sri Lankan-born money manager is accused of making $45 million from tips leaked by corporate insiders and hedge fund traders.
Rajaratnam, who co-founded Galleon Group LLC, claims his trades were based on legitimate research.
EBay Firings
Dowd asked Kumar about stories in the press discussing EBay Inc. (EBAY)’s plans to fire 10 percent of its workers in 2008. He showed Kumar articles from Barron’s and Bloomberg News reporting that the online auction site was planning the firings.
“You didn’t provide Mr. Rajaratnam with any confidential, nonpublic information about EBay, did you?” Dowd asked.
Assistant U.S. Attorney Jonathan Streeter later asked Kumar whether there is a difference between the press stories about the EBay firings and the information Kumar delivered to Rajaratnam.
“Night and day,” Kumar answered. “It’s between actually knowing if an event is going to happen and being part of the noise in the system.”
Dowd asked Kumar about his testimony that he was paid $1 million for his tip about AMD’s acquisition of ATI, suggesting instead that Kumar was being paid for legitimate consulting work, including a role in the launch of New Silk Route, a private equity fund investing in South Asia.
“I did very little work in the beginning,” Kumar testified.
Rarely Consulted
He said he was rarely consulted by Rajaratnam and Rajat K. Gupta, an ex Goldman Sachs Group Inc. (GS) director, who were among the financial backers of the fund, about it.
“They treated me pretty poorly, Mr. Dowd,” Kumar he said. “They treated me like I was irrelevant.”
Kumar testified that he and Gupta created a company called Mindspirit LLC in 2001 as a vehicle for their two families to make investments, not as a consulting company, as suggested by Dowd.
Dowd and Kumar sparred at times, with Dowd accusing Kumar of “making up” facts in the courtroom and of trying to get “something for nothing” from the New Silk Route fund, in which he said he invested $1 million.
“I was not worth $2 billion like Mr. Rajaratnam,” Kumar replied.
Kumar told jurors on March 14 that after the AMD-ATI deal was made public, Rajaratnam called him at home to thank him for the information, saying, “We’re all cheering you at the office right now.”
‘A Star’
“‘You’re a star,’” Rajaratnam told Kumar, according to the ex-McKinsey director. “‘I want to give you a million dollars.’”
Under questioning by Streeter, Kumar told jurors he sent $1 million to the U.S. Treasury to cover the estimated tax liability from the proceeds of his deal with Rajaratnam. He’s put an additional $2.7 million into escrow to cover a possible order of forfeiture when he’s sentenced, he said.
Streeter asked Kumar whether he thought at the beginning of his deal with Rajaratnam that he would be passing on the confidences of his McKinsey clients.
“When he first offered it to me, I thought it was for my experience and my insights,” Kumar said. “I was mistaken.”
After Kumar’s questioning, prosecutors called a former Intel Corp. (INTC) investor-relations official, Alexander Lenke, to testify. Lenke said that Rajiv Goel, a former Intel treasury executive, asked him about the company’s performance in January 2007 and that Lenke gave him some of the confidential numbers in April 2007, before they were publicly reported.
Goel has pleaded guilty to insider trading and is expected to testify that he tipped Rajaratnam about Intel’s performance.
The case is U.S. v. Rajaratnam, 1:09-cr-01184, U.S. District Court, Southern District of New York (Manhattan).
To contact the reporters on this story: Bob Van Voris in Manhattan federal court at rvanvoris@bloomberg.net; David Glovin in Manhattan federal court at glovin@bloomberg.net; Patricia Hurtado in Manhattan federal court at phurtado@bloomberg.net.
To contact the editor responsible for this story: David E. Rovella at drovella@bloomberg.net.
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