Prosecutors are “tarring” Mr Rajat Gupta by linking the former Indian-American McKinsey head’s knowledge of a million dollar payment made to one of his proteges by convicted hedge fund founder Mr Raj Rajaratnam to being a violation of the company’s policy, a US judge has said.
During the last day of the second week of Mr Gupta’s insider trading trial in a Manhattan court, US District Judge Jed Rakoff said that the prosecution had given him a “misimpression” when they alleged Mr Gupta had violated the policies of McKinsey by knowing that Mr Rajaratnam was paying a million dollars to Mr Anil Kumar for giving the Sri Lankan native insider information about various companies.
Mr Kumar, Gupta’s protege at the global consulting firm, is one of the key government witnesses testifying against the former Goldman Sachs director and has known Mr Rajaratnam and Mr Gupta for years.
A batch mate of Rajaratnam’s at the Wharton Business School and a former McKinsey partner, Mr Kumar gave details to the jurors yesterday about the meetings Gupta, Rajaratnam and he had in 2006 about forming an investment fund focused on South Asia, particularly India.
Mr Kumar said he later introduced Gupta to Rajaratnam after the hedge fund manager made an “anonymous” USD one million donation to the school.
Before Mr Kumar was called to begin his testimony, the prosecution wanted to show to the jurors that Gupta was aware of Mr Kumar being paid by Mr Rajaratnam for passing confidential information to the Galleon hedge fund founder and yet Mr Gupta did not take any action against Mr Kumar.
Instead, according to a July 29, 2008 phone call, when Mr Rajaratnam tells Gupta that “I’m giving him (Kumar) a million dollars a year for doing literally nothing,” Mr Gupta replied, “yeah...”. “I think you’re being very generous.”
Mr Gupta’s defense lawyer Gary Naftalis said during a jury break that they had checked McKinsey policies and had found nothing to show that the payments to Kumar went against any specific McKinsey policy.
“You are tarring Mr Gupta based on a very limited reference to one aspect of it (McKinsey policies),” Rakoff told prosecutor Reed Brodsky.
The prosecution said as a McKinsey head, there should have been an “understanding” that Mr Gupta disapprove of the payments Mr Rajaratnam made to McKinsey employee Mr Kumar.