Ex-McKinsey Executive Testifies Against Gallen Group Founder In Insider Trading Case

Kumar in January pleaded guilty to charges of conspiracy and securities fraud and is now cooperating with authorities as the second witness in Rajaratnam's trial. Rajaratnam faces 14 counts of conspiracy and securities fraud, and has pleaded not guilty on every count. According to Kumar's testimony, Rajaratnam and he were involved in conversations in early 2006 that led him to leak confidential information regarding companies including AMD to Rajaratnam, The Wall Street Journal reported.

Kumar testified that he leaked details of secret negotiations around the potential acquisition of Canadian graphics maker ATI by Sunnyvale, Calif.-based AMD. He said the Galleon founder had been paying him $500,000 in exchange for tips, and that Rajaratnam was highly dubious about AMD spending $20 a share to purchase ATI at first, and later told Kumar the information was very useful. Prosecutors last week said Rajaratnam bought 50 million shares of ATI stock in anticipation of its acquisition by AMD --bringing in $20 million in profits.

Kumar was a consultant for McKinsey who advised AMD during negotiations over ATI, which AMD acquired in 2006. AMD, rival Intel, and other firms could face civil action as the biggest insider trading case in the U.S. unfolds.

Furthermore, according to transcripts of taped conversations which prosecutors on Monday introduced as evidence in the trial, and which The Wall Street Journal has posted online, the defendant allegedly sought to cover up the conspiracy. Rajaratnam discussed a deal involving AMD spinoff Spansion with his employees, seemingly telling them to create an e-mail trail to make it seem as though Galleon was buying Spansion shares because of their pricing rather than insider information.

In the midst of the 2008 economic crisis, Rajaratnam and his brother, hedge fund executive Rengan Rajaratnam discussed secret information regarding the semiconductor industry derived from the leak. In addition, the defendant allegedly urged former hedge-fund manager Danielle Chiesi not to disclose information she had received from Rajaratnam as well as other sources.