MANHATTAN (CN) – A government witness who testified against Raj Rajaratnam, the billionaire Galleon executive facing insider-trading charges, scoffed at a defense attorney’s attempt to unravel his testimony in the second day of cross-examination Wednesday.
Prosecutors in the securities fraud case against Galleon hedge fund co-founder Rajaratnam concluded the third day of Anil Kumar’s direct examination on Tuesday afternoon, and Rajaratnam’s defense attorney John Dowd finished the day with three grueling hours of cross-examination.
Back on the stand Wednesday for another three-hour round Wednesday morning, Kumar seemed impatient with Dowd’s suggestion that Rajaratnam had hired him for legitimate purposes like arranging meetings, rather than providing inside information.
Rajaratnam fell asleep at one of the few meetings he arranged, Kumar insisted.
The Galleon co-founder is accused of organizing the largest insider-trading scheme in history. He allegedly made $45 million from the scheme, which has brought guilty pleas from more than 15 alleged associates and tipsters.
Kumar, a former executive for McKinsey & Co., was unfazed when Dowd showed him a Galleon ledger reflecting a $1 million payment for consultation services. “I don’t think they could have written they paid it for inside information in their records, sir,” Kumar said, prompting laughter in the courtroom.
Dowd argued in opening statements that cooperating witnesses were “on a leash” by the government to avoid heavy sentences for related crimes, and he said that Kumar is trying to avoid being penalized for tax fraud.
Kumar vigorously denied the accusations in the second day of tense cross-examination, and he bristled at Dowd’s suggestion that he was trying to “minimize” legitimate reasons for his $1 million bonus to invent a story of insider trading.
Kumar said that the legitimate services that he provided were “marginal,” referencing a wiretapped phone call played in court yesterday in which Rajaratnam told a friend, “I’m giving [Kumar] a million dollars a year for doing literally nothing.” (Click here to download the full audio, a nearly 18-minute file.)
“I did almost nothing,” Kumar testified Wednesday. “Almost zero. Why would someone pay me for doing nothing?”
Dowd said that the alleged inside tip Kumar provided about a deal between the computer processing company Advanced Micro Devices and Abu Dhabi was reported widely in the press. Evidence showed that one publication reported on July 23, 2008, that it was a “done deal” and “the likely suitor is Abu Dhabi.”
Kumar replied that “speculation” about that deal was public information. Questions of “what, how much, when, and if” were only available to insiders, Kumar said.
“It may have been speculative a few days before,” Kumar said. “I was privileged to know months before.”
Dowd said that media coverage of eBay’s October 2008 layoffs was quite specific, and investors did not require inside knowledge of the online auction company. He said that Bloomberg reported the percentage of employees to be laid off and the date it would happen before Kumar tipped Rajaratnam by phone.
Kumar replied that there is a difference between press speculation, and the inside information that he said he provided.
On redirect this afternoon, Assistant U.S. Attorney Jonathan Streeter suggested that Dowd was selectively quoting the articles and analyst reports that he displayed.
Though Dowd had quoted from an analyst report earlier in the day to show that negotiations broke down between Advanced Micro Devices and graphics chip maker ATI Technologies, Streeter said that the article goes on to say that the companies resolved their dispute after just a few hours.
In early press coverage of the eBay layoffs, the company’s spokesman is quoted as refusing to comment on “rumors,” Streeter continued.
On re-cross, Dowd accused Kumar of making inconsistent statements during his allocution hearing and on the witness stand. Raising his voice, Dowd said that Kumar first said that he willingly told Rajaratnam inside information, and then told the jury that he would not have given the information if he knew how Rajaratnam would use it.
In the government’s final redirect, Kumar said that Dowd ignored the timeline. The tipster admits that he knowingly shared inside tips with Rajaratnam during the scheme, but he claims that his “eternal regret” will be that he did not recognize Rajaratnam’s expectations at the start of their professional relationship.
During the first two days of the government’s examination, Kumar explained how his relationship with Rajaratnam developed from business school chums to something more insidious. Kumar, who pleaded guilty to fraud in January, says Rajaratnam paid him a six-figure salary to share inside information about McKinsey’s clients, and gave him a $1 million bonus after a tip about the computer processing company Advanced Micro Devices proved fruitful.
Witness testimony continues on Thursday with Alexander Lenke, a former investor relations manager for Intel.