MANHATTAN (CN) – Upon learning that the FBI was investigating him for insider trading, billionaire Raj Rajaratnam told a co-conspirator to call him using pre-paid cell phones, according to witness testimony Tuesday.
Rajaratnam, co-founder of the Galleon hedge fund, is accused of conceiving 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.
One of the admitted tipsters, Anil Kumar, a former financial consultant for the firm McKinsey & Co., underwent a third day of testimony Tuesday as part of his plea bargain with the government.
In the first day of cross-examination on Tuesday afternoon, defense attorney John Dowd downplayed the “services” Kumar provided to Rajaratnam.
“Illegal services,” Kumar replied.
Kumar laughed when Dowd showed him e-mails he sent Rajaratnam with publicly available news articles and reports.
“He could obtain those for $1,000 a year from any number of news wires and outlets,” Kumar said.
During the first two days of the government’s examination, Kumar said that 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.
Kumar added that all of his tips didn’t pan out, and that one dud in particular caused him to lose out on his bonus. After telling Rajaratnam about a multibillion-dollar investment from Abu Dhabi into manufacturing factories, the Galleon executive lost money in the wake of the 2008 global stock market crash.
The McKinsey executive also advised Rajaratnam on a potential business partnership between Galleon and Goldman Sachs board member Rajat Gupta, who was recently charged by the Securities and Exchange Commission for his alleged role in the scheme.
Kumar also tipped Rajaratnam off about eBay’s plans to lay off of a “sizable” portion of its workforce. Kumar later learned that figure was 10 percent.
Prosecutors unveiled a document and wiretap evidence showing that Kumar called Rajaratnam with the tip the morning after he received an e-mail from McKinsey with the announcement (marked “CONFIDENTIAL!!!”). (Click here to download the 51-second audio file.)
But that same year, Rajaratnam told Gupta, the Goldman board member, that he was unimpressed with the information Kumar was providing him, a wiretapped conversation revealed. Rajaratnam is recorded telling Gupta, “I’m giving [Kumar] a million dollars a year for doing literally nothing.”
During the same conversation, Gupta told Rajaratnam that Goldman Sachs considered buying Wachovia and AIG, but said he would be “extremely surprised” if there was “anything imminent.” (Click here to download the full audio, a nearly 18-minute file.)
Kumar said that Rajaratnam arranged for a boat in Miami as the two prepared for a mutual friend’s wedding in Trinidad. While they were in Miami, Rajaratnam learned that he had been secretly taped by a friend, Kumar said.
That friend turned out to be Ali Far, a hedge fund manager who pleaded guilty to the fraud, Kumar said.
Kumar said that he was lying on a deck chair when Rajaratnam complained, “I can’t believe he’s betraying me!”
That night, Rajaratnam told him to call from pre-paid phones and mentioned that a Cisco executive said the networking company would acquire Starent, Kumar said. A week later, the acquisition was announced, and Rajaratnam and Kumar were both arrested, Kumar said.
Assistant U.S. Attorney Jonathan Streeter concluded the third day of Kumar’s direct examination shortly after noon Tuesday. Streeter has played more than 20 recordings of Rajaratnam since witness testimony began on Thursday.
Defense attorney John Dowd tried to discredit Kumar by focusing on false information that he submitted to the Internal Revenue Service.
“I was trying to accommodate Mr. Rajaratnam’s suggestion,” Kumar said, adding that he sent $1 million to IRS “in good faith” to cover more than he was owed before the final amount is determined.
Kumar strongly denied Dowd’s suggestion that his cooperation agreement demanded that he testify “the way the government wants you to testify.”
“Wrong,” Kumar said. “I understand that full compliance meant telling the truth, the whole truth and nothing but the truth in a court of law.”
Cross-examination continues on Wednesday.