Rajat Gupta's wealth in focus, protege Anil Kumar testifies on Day 9 of trial
Betwa Sharma June 2, 2012On Day 9, Anil Kumar, former senior partner at McKinsey & Co., told the 12 member jury about several business enterprises planned by Rajat Gupta, on trial for insider trading, and billionaire hedge fund manager Raj Rajaratnam, who was convicted for the same crime last year and is serving an 11-year prison sentence.
Gupta, the former global head of McKinsey, has been accused by the US government of passing confidential information to Rajaratnam about Goldman Sachs Group Inc. and Proctor & Gamble Co. while serving as director for both.
Last year, Kumar pleaded guilty to giving Rajaratnam insider tips while he was still employed by McKinsey. He is now cooperating with the government to get a reduced sentence. Kumar also testified at Rajaratnam's trial. They both graduated from University of Pennsylvania's Wharton Business School in 1983.
Kumar, often described as Gupta's protege, is being used by the prosecution to establish the nature of the relationship that existed between Gupta and Rajaratnam, also the co-founder of the now defunct Galleon Hedge Fund LLP.
The defence lawyers have argued that the two men were not on good terms and they eventually had a falling out in 2008 after Rajaratnam's mismanagement of their joint investment fund, Voyager Capital Partners, caused Gupta a $10 million loss.
On Friday, Kumar appearing as a government witness testified that all three men interacted regularly over the past several years. They also met a few times at the Galleon office on Madison Avenue.
Kumar told the jury that both Gupta and he were advising Rajaratnam on how to expand Galleon from a $7 billion hedge fund into a $10 billion firm. Kumar said that Gupta gave Rajaratnam "strategic advice" like focusing on Asia.
Kumar also testified about a plan to create Galleon Global, which would be co-founded by all three. According to Kumar, Gupta wanted to be its "sponsor and wise man" but the plan never took off.
Kumar revealed that Gupta's post-retirement dream was to create an asset management company with a focus on South Asia, which would rival the best firms in the US. "He wanted to create one of the best asset management companies," said Kumar. The men had their first discussion about the plan in 2006 when they were in India. "It was a total coincidence," he said.
Gupta, he recalled, wanted Rajaratnam to be the Chief Investment Officer of the company, which eventually was not created. Kumar told the jury that Gupta had described Rajaratnam as "very qualified and talented in the business that he runs."
Rajaratnam and Gupta, along with others, eventually formed a more than $1 billion private equity firm, New Silk Route, which was launched in 2007 and temporarily housed in the Galleon office.
Judge Jed Rakoff, however, did not allow the prosecution to ask questions about a part of a wiretapped conversation from July 2008 in which Rajaratnam tells Gupta, "And I, you know, honestly, Rajat, I'm giving him a million dollars a year for doing literally nothing."
The prosecution wanted to indicate that Gupta probably knew or suspected Rajaratnam's illegal dealing with Kumar. The judge, however, decided that the prosecution could not take this line of questioning because McKinsey had no written policy that barred outside payments even though the practice was frowned upon.
In the same conversation, Rajaratnam also described Kumar as "mini Rajat." Kumar's testimony will continue on Monday.
Earlier in the day, government witness Heather Webster, Gupta's private banker at JP Morgan Chase & Co., testified that Gupta's net worth in 2008 was $84 million along with an irrevocable trust for estate planning of $38.5 million as well as $11 million in cash.
While Kumar is a government witness, several observers commented that his testimony, until now, wasn't particularly damaging for Gupta. "He (Kumar) isn't testifying against him (Gupta)," said Atul Kanagat, the defendant's friend and a former senior partner at McKinsey, who is often present in court. "It's (testimony) totally harmless…I'm puzzled why they (prosecution) called him unless it is to refresh the Rajaratnam case."
Rajiv Luthra, founder of the Luthra & Luthra offices in Delhi, also attended the legal proceedings on Friday. "I don't believe even an iota that he (Gupta) is guilty," said Luthra. "I can say this because of knowing him for 20 years."
Kumar's testimony made the relationship between the three men, which so far had been captured on wiretaps and phone records, come alive. Unlike many witnesses who look at the lawyers while speaking, Kumar spoke directly to the jury.
Kumar explained his own role in the insider trading scam far less emotionally than he had while testifying in the Rajaratnam trial. But similar to his manner, last year, he tried to use simple language to explain technical aspects of his answers to the jury, which made the testimony more interesting. One juror, sometimes observed dozing, was sitting up straight and listening.
Kumar also spoke quite passionately about the Indian School of Business, which he co-founded with Gupta. "I had put my heart and soul into starting a business school in India," he said. "He (Gupta) and I worked very closely." Both men have resigned from the board of ISB. When they were looking for funds to start the school, Rajaratnam donated $1 million even though he is Sri Lankan. "He was surprisingly generous…I was touched by what he had done," said Kumar.
His testimony was also peppered with witticisms. He remarked that he had to call Rajaratnam on his cell phone, because the hedge fund manager's secretary never put him through on the landline. While giving a description of the Galleon office, Kumar described the trading corner as a place where people were constantly shouting as if they were "pretty high on testosterone." Along with the rest of the courtroom, Gupta grinned broadly.