Anil Kumar has been the consummate co-operator. Over the past two years, he detailed an illicit scheme with a billionaire hedge fund titan, decoded secretly recorded conversations and gave stunning performances in two of the largest insider trading cases in history.
The government thanked him by letting him off with no jail time.
On Thursday, Kumar, a former top partner at the prestigious consulting firm McKinsey & Co., was sentenced to two years of probation for insider trading. He will have to repay more than $2 million in ill-gotten gains.
Kumar has been a crucial guide and witness for the federal government in its widespread crackdown on insider trading.
The multiyear investigation has spanned the corporate ladder, from a low-level secretary to a director of some of the nation’s best-known companies. The Justice Department has garnered big wins. Of the 71 individuals charged with insider trading over the past three years, 65 have been convicted and the remaining six cases are pending. Kumar pleaded guilty in 2010.
Kumar proved particularly useful as prosecutors built their signature cases against Raj Rajaratnam, the billionaire who founded Galleon Group, and Rajat K. Gupta, the former managing partner of McKinsey and a former director at Goldman Sachs and Procter & Gamble. In addition to providing crucial investigative leads, Kumar testified at the trials of both men, who were convicted on multiple counts of insider trading. Kumar was friends with Gupta and Rajaratnam, and shared confidential information with the hedge fund manager.
Kumar’s sentence underscores the importance of co-operators to the government. For all the new tools deployed to ferret out white-collar crime, including wiretaps and trade analysis, investigators still rely heavily on the low-tech strategy of turning conspirators into witnesses.
On the stand, Kumar was often contrite, repeatedly expressing his sorrow for getting involved with Rajaratnam in the insider trading ring. Kumar’s testimony was filled with details, including the specifics of conversations, meetings and memos dating back years.
Though he often butted heads with defence counsel, he rarely came across as hostile on the stand. Trial prosecutors praised Kumar as one of the most effective witnesses any of them had ever worked with in a securities fraud case.
“Kumar’s testimony was nothing short of devastating,” noted the prosecutor Reed Brodsky in a sentencing memorandum for Kumar. “Kumar was credible, precise and fully corroborated.”
Kumar started cooperating right away, prosecutors said. Shortly after investigators arrested him in October 2009, he detailed how he tipped off Rajaratnam about inside information on various clients, like Advanced Micro Devices and eBay. All told, Kumar was paid more than $1.7 million for his tips in part via an overseas account registered in his housekeeper’s name.
Though he had known Rajaratnam since the two attended the Wharton School of Business in the 1980s, he began divulging confidential information only in the mid-2000s. Initially, Rajaratnam suggested that he pay Kumar a salary of about $500,000 a year for his advice and guidance. There was no mention of insider information.
But as time progressed, Kumar testified, he felt that he owed something to Rajaratnam for his generosity. Soon, he was calling the Galleon founder with tips on mergers and layoffs at various companies. One particularly good year, Rajaratnam gave him a $1 million bonus.
At trial, Kumar said he was torn about his transgressions. He knew he was committing a crime and had violated the trust of his consulting clients, but he said he wanted the money and favours a man like Rajaratnam could bestow on him. When the FBI arrested him, Kumar fainted.
“By their very nature, criminal insider trading conspiracies are secretive, and the participants, who generally are highly intelligent and resourceful, are able to conceal their activities well and create false explanations for their trading based on material, non-public information,” Mr. Brodsky wrote in his memorandum. “Cooperators like Kumar are incredibly important in order to prosecute these cases.” — New York Times News Service