July 19, 2012 9:46 pm

Rajaratnam testimony helps Kumar avoid jail

A former McKinsey partner who was the government’s star witness at the insider trading trial of Raj Rajaratnam was sentenced to two years probation, the most recent co-operator to avoid prison.

A US judge also ordered Anil Kumar, the former McKinsey partner, to forfeit $2.2m. Mr Kumar pleaded guilty in January 2010, three months after he was arrested along with Mr Rajaratnam, founder of Galleon Group, in the highest profile insider trading case in a generation.

Mr Kumar is the latest government co-operator who has avoided prison for helping prosecutors build their cases. Last month Adam Smith, a former Galleon portfolio manager who co-operated and testified against Mr Rajaratnam, received two years probation. David Plate, a former trader at Schottenfeld Group, received three years probation after pleading guilty and testifying against Zvi Goffer, a former Galleon trader.

The light sentences, compared with Mr Rajaratnam’s 11-year prison term, may provide further incentive for individuals and organisations under investigation to co-operate against their colleagues.

“It reflects a trend which is now developing in the corporate area where business organisations involved in government inquiries are developing evidence of wrongdoing by their business partners and affiliates as part of their effort to earn ‘co-operation credit’ and get a better deal,” said Thomas Gorman, a law partner at Dorsey & Whitney.

Other traders and consultants who have pleaded guilty without co-operation deals have received sentences ranging from six months in prison to several years.

In arguing for a light sentence, prosecutors said Mr Kumar’s co-operation was “nothing short of extraordinary”.

At Mr Rajaratnam’s trial, Mr Kumar provided vivid testimony about the trading scheme that ran from 2004 until 2009 when it unravelled following a short trip to the beach in Miami.

Mr Kumar told jurors over four days that Mr Rajaratnam approached him after a gala in New York for his insights, which developed into their trading scheme involving millions of dollars in payments funnelled through an offshore bank account to an account at Galleon held in the name of Mr Kumar’s housekeeper.

Prosecutors called Mr Kumar back to the witness stand earlier this year to testify against Rajat Gupta, his mentor at McKinsey. Mr Gupta was convicted of telling Mr Rajaratnam secret information he learnt while serving on the board of Goldman Sachs. He will be sentenced in October.

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