Rajaratnam defense attacks star U.S. trial witness

Reuters News
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Posted: Mar 22, 2011 12:05 PM

By Grant McCool and Basil Katz

NEW YORK (Reuters) - A lawyer for accused hedge fund manager Raj Rajaratnam attacked a star government trial witness on Tuesday, saying he cut a plea deal to avoid criminal charges of money laundering and tax dodging.

Disgraced former McKinsey & Co partner Anil Kumar appeared shaken while trying to explain under cross-examination the terms of his cooperation in the case.

"You weren't charged with money laundering, right?" Rajaratnam's main lawyer, John Dowd, asked Kumar, who has been on the witness stand in Manhattan federal court for three days. "You understand that they could have charged you?"

"Yes," Kumar replied glumly after a long pause.

The sharp exchange came after the jury heard more wiretaps of phone calls, including one between Rajaratnam, the central figure in the biggest Wall Street insider trading case in decades, and a friend on the Goldman Sachs board, Rajat Gupta, who relayed boardroom discussions about merger opportunities in mid-2008, including the possible acquisition of Wachovia.

Onetime billionaire Rajaratnam, 53, and Kumar were arrested in October 2009 in a massive insider trading probe that shook the secretive $1.9 trillion hedge fund industry. Nineteen people have pleaded guilty, while Galleon Group founder Rajaratnam has vowed to clear his name at trial.

Prosecutors contend that Rajaratnam assembled an array of friends in high places who fed him stock tips, including technology company expert Kumar and Gupta, the former Goldman Sachs director. Rajaratnam's lawyers contend that he only traded stocks based on public information and Galleon's own expert research and analysis.

Indian-born Kumar, 52, told the jury 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. He pleaded guilty to conspiracy and fraud charges in the Galleon case and agreed to cooperate in hopes of a lighter sentence.

"You're trying to cut a deal. You're trying to give up the money without paying the taxes, isn't that right, Mr Kumar?" Dowd asked in another sharp exchange.

"No. No. No," Kumar said testily into the microphone.

Kumar also has reached a $2.8 million civil settlement with U.S. market regulators in the insider trading case.

Rajaratnam is on trial for alleged insider trading involving Goldman and dozens of other stocks.

The 12 jurors heard a digital recording of a Rajaratnam mobile phone call on July 29, 2008, with Gupta, who sat on the Goldman board at the time. Market regulators accuse Gupta of leaking inside information, but he has not been criminally charged.

Rajaratnam asks about rumors of a possible Goldman acquisition of a commercial bank, Wachovia.

"This was a big discussion at the board meeting," Gupta is heard telling Rajaratnam. "Buy a commercial bank. And you know, it was a divided discussion in the board."

Gupta is heard saying that if Wachovia "was a good deal," the board could be interested in it, and that American International Group also "was in the discussion mix." The phone call was secretly recorded by the FBI.

Wells Fargo & Co paid $12.5 billion for Wachovia, which was weighed down by a huge portfolio of mortgage securities, in a deal completed on December 31, 2008. AIG, now almost entirely owned by the government, nearly collapsed in autumn 2008.

Gupta stepped down from Goldman's board in May 2010. He is also a former worldwide managing director at McKinsey & Co, an elite consulting firm, and until recently sat on the boards of AMR Corp and Procter & Gamble.

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

(Writing by Martha Graybow; additional reporting by Basil Katz; editing by John Wallace, Gary Hill)