Kumar "terrified" by Rajaratnam Intel papers: trial

Reuters News
Posted: Mar 22, 2011 11:50 AM

By Grant McCool and Basil Katz

NEW YORK (Reuters) - A disgraced former McKinsey & Co partner testified that he was "terrified" to receive secret documents from hedge fund manager Raj Rajaratnam, who is on trial on charges of running a vast insider trading ring.

Anil Kumar, on his second day on the witness stand, told a New York jury that Rajaratnam mailed him confidential documents about product plans of Intel Corp, the main competitor to Advanced Micro Devices Inc, a McKinsey client.

"I was terrified at having such documents in my office. It was clearly inappropriate. I asked my assistant to shred it," Kumar said at Rajaratnam's criminal trial in Manhattan federal court.

Kumar, who has admitted to supplying information on AMD to Rajaratnam, said the hedge fund manager did not tell him in advance that he was sending the documents on Intel, or where he got them.

Rajaratnam, founder of the Galleon Group hedge fund, is accused of trading on inside tips supplied by high-ranking friends throughout corporate America. It is the biggest Wall Street insider trading investigation in decades. Nineteen people have pleaded guilty to criminal charges in the case.

Indian-born Kumar, 52, who has pleaded guilty to criminal charges of conspiracy and fraud in his relationship with Rajaratnam between 2003 and 2009, is the first of several former Rajaratnam friends to testify.

During Kumar's calmly-delivered testimony, Rajaratnam sat on a chair behind the defense table, listening and occasionally writing on a legal pad.

Manhattan U.S. Attorney Preet Bharara, who has described insider trading as "rampant" as his office prosecuted the case, attended part of Monday's proceeding.

Kumar told jurors that after receiving $125,000 hidden payments in 2005 from Rajaratnam in the name of Kumar's housekeeper, Rajaratnam pressed him for specific financial information about AMD, instead of information from "big picture" strategy meetings Kumar was invited to attend.

"He wanted to move to an arrangement where he could monitor the benefits and share the profits," Kumar testified. "I was a consultant at heart and the fact that seeing shares being bought seemed like an even bigger crime to me."

He said the "whole thing felt like we would be more prone to exposure and emotionally difficult."

The trial started last Tuesday and is expected to run for two months. If convicted, Sri Lankan-born Rajaratnam faces up to 20 years in prison on the most serious charge of securities fraud.

The case is USA v Raj Rajaratnam et al, U.S. District Court for the Southern District of New York, No. 09-01184.

(Reporting by Grant McCool, editing by Dave Zimmerman)