Former schoolmate testifies at 'Raj' trial

A former business schoolmate of a one-time billionaire hedge fund boss took a lead role yesterday at an insider trading trial, testifying he agreed to accept $500,000 annually eight years ago to reveal secrets about public companies to his longtime friend.

Anil Kumar, 52, of California, testified for the prosecution at the trial of Raj Rajaratnam, supporting government claims that Rajaratnam was on the prowl for an edge in the trading of stocks for his hedge funds and was willing to break the law to get it.

Kumar, who worked for McKinsey & Co. for more than 23 years before his October 2009 arrest, pleaded guilty to securities fraud charges last year and testified in the hopes of leniency at sentencing.

Prosecutors say Rajaratnam, 53, earned at least $24.5 million from Kumar's tips, including more than $20 million from a single tip in 2006.

Kumar said he was not close to Rajaratnam when they both attended the University of Pennsylvania's Wharton School in the '80s. After school, he said, Rajaratnam became a technology analyst and they became acquainted as business friends.

"I found Mr. Rajaratnam to be quite an insightful person on technology," he said.

Kumar said he began meeting with Rajaratnam as many as four times a year after Kumar returned in 1999 from a six-year stint in India, where he was born. He said they were both living in California at the time and that Rajaratnam had become quite successful after opening Galleon Group Llc, a family of hedge funds that shut down after his arrest.

Kumar, a U.S. citizen, said Rajaratnam told him in 2002 that he received $100 million annually to spend on research and was interested in obtaining consulting services. When Kumar tried to arrange a deal through his company, Rajaratnam pulled him aside as both men were walking outside after a charity event ended.

"He said, 'What I really want is your input and I'd much rather have you as a consultant than McKinsey," ' Kumar recalled.

When Kumar said he was not allowed to arrange side deals, Rajaratnam suggested annual payments of $500,000 be put in an overseas account, with some of it eventually being reinvested with Galleon, Kumar testified.

The trial is scheduled to resume Monday.