Anil Kumar, a former Indian American partner of consulting firm McKinsey & Co has testified to leaking secrets about his clients to billionaire hedge fund tycoon Raj Rajaratnam in exchange for $1.75 million.

Taking the witness stand in the biggest US insider trading trial in years, Kumar, 52, told a New York court Thursday that Sri Lankan-born Galleon hedge fund founder Rajaratnam practically put the money in his account against his will.

It was because Rajaratnam had paid him so much (the agreement was for $250,000 per year) that he felt obligated to tell him secret information about AMD, a micro chip company whose shares Rajaratnam allegedly traded improperly, he said.

” [I violated my confidentiality agreement with McKinsey and AMD because] Raj kept asking and I felt I owed him something given how much he paid me,” a remorseful looking Kumar dressed in a black suit and a black tie testified.
He said a couple of times that he felt like he had to give information to Raj because Raj was paying him.

Specifically, Kumar said, he told Raj material non-public information about “Octeron,” a chip that AMD was secretly creating (its code name was “Maid” because it was so top secret) in order to challenge Intel’s big business with HP.

Upon learning about the “Octeron” chip and AMD’s plan to sell the chip to HP or Dell and subvert Intel’s business with the companies, Raj said, “That’s very useful information,” according to Kumar.

Raj is the only person with whom Kumar shared info, according to his testimony. And he only told him because Raj had put $250,000 into his account somewhat unbeknown to Kumar.

Kumar says he was only made aware of the payments entering his account a few weeks after the transaction happened.

Kumar alleged that according to Rajaratnam’s plan payments would be transferred from “Instanet,” a company which apparently hedge funds and other financial firms frequently use to make “soft dollar” payments to experts, to “Pecos Trading,” an offshore company in Switzerland. From there, the money would be transferred in the name of Kumar’s housekeeper, Manju Das.

Kumar said Rajaratnam told him: “You work very, very hard. You are underpaid. People are making fortunes … so just keep track of your knowledge and share it with me.”

Earlier the Manhattan court also for the first time heard the voice of Rajaratnam captured on FBI wiretaps. He is heard at times giggling with associates and on other occasions speaking rapidly in a high-pitched voice, rattling off numbers and acronyms for companies.

Along with Kumar, the recordings featured another friend-turned-government-witness, Intel Corp’s Rajiv Goel, and former Galleon employee Adam Smith, who will also testify in the two-month trial.

Prosecutors allege that Smith and Rajaratnam conspired to obtain secret information about a potential acquisition of Vishay Intertechnology Inc, a company prosecutors cited in charges against both men.

Kumar’s testimony will resume on Monday. He is among 19 people who have pleaded guilty to conspiracy or fraud charges in the broad Galleon probe.

Prosecutors say Rajaratnam made $45 million in illicit profit from 2003 to March 2009 through insider trading. His lawyers contend that he conducted legitimate stock research and did not gain an unfair advantage over other investors.

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