Former McKinsey tipster netted $2.6m

Financial Times - Former McKinsey director Anil Kumar on Thursday agreed to forfeit $2.6m prosecutors said he received for passing along confidential tips to Raj Rajaratnam, the Galleon hedge fund founder accused of masterminding a vast insider trading scheme.

The agreement came as Mr Kumar became the seventh person to plead guilty in the case. Prosecutors said that he was initially approached by Mr Rajaratnam in late 2003 or early 2004 and offered $500,000 a year to provide information about companies that he had access to through McKinsey.

The funds were allegedly paid by Mr Rajaratnam and were deposited for Mr Kumar in a Swiss bank account. Some of the money was reinvested for Mr Kumar through an account with Galleon, prosecutors said. He was paid $1.75m directly and earned a total of $2.6m through his involvement with the alleged Galleon scheme.

A visibly emotional Mr Kumar, appearing before Judge Denny Chin, “profusely” apologised to his colleagues and friends for the “shame and embarrassment they suffered”.

Mr Kumar, who was accused of passing on information about Advanced Micro Devices, a company he advised while at McKinsey, was part of the first group of people to be charged in the insider trading investigation, which has ensnared top executives across corporate America since the first arrests were made in October.

Prosecutors said that one of Mr Kumar’s most profitable tips related to AMD’s 2006 acquisition of ATI Technologies. The information netted Galleon $19m and prosecutors said that after the deal Mr Rajaratnam called Mr Kumar a “hero”.

Mr Rajaratnam’s lawyer, John Dowd, has denied that his client paid for information relating to that deal, arguing that he had used public information.

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

Mr Rajaratnam has been accused of making $36m in illicit profits through the scheme. A total of 21 people have been accused in the case and the investigation is ongoing. Mr Rajaratnam has maintained his innocence.

By pleading guilty to securities fraud and to conspiracy to commit securities fraud, Mr Kumar faces up to 25 years in prison. On Wednesday he signed a plea agreement that he knowingly joined the scheme and did something that was illegal. Under the deal he also agreed to forfeit the $2.6m.

Robert Morvillo, Mr Kumar’s attorney, told the court that his client would work with law enforcement officials “in an attempt to rectify the consequences of his conduct”.

“He is pained by the fact that he has embarrassed and let down his colleagues at McKinsey, all of whom have always treated him kindly and generously,” Mr Morvillo said. “He apologises to all he has hurt and greatly regrets his lapse of judgment.”