Gov't witness: Galleon founder paid for tips

NEW YORK -- A wealthy hedge fund manager was fed "red hot'' information about a pending merger in the technology industry that allowed him to make $20 million on a massive insider trade, an admitted tipster testified Monday.

Former financial consultant Anil Kumar said Raj Rajaratnam paid him $1 million and called him a "hero'' for providing inside tips about the 2006 acquisition of ATI Technologies Inc. by Advanced Micro Devices Inc. He said he and Rajaratnam broke the law by speaking regularly about the pending deal before it was announced.

"I told him that this was 'red hot' and shouldn't be discussed,'' Kumar said. Later, he said he cautioned the defendant, "This is going to be a complete shock to the industry ... so treat this with the strictest of confidence.''

Rajaratnam, 53, of Manhattan, is on trial on conspiracy and security fraud charges. He is the only one of more than two dozen people charged in the insider trading crackdown to face trial. Nineteen people have pleaded guilty.

The government alleges that Rajaratnam earned more than $50 million illegally by trading on inside information since 2003 the biggest hedge fund insider trading case in history. The investigation also has led to another probe that targets those who pose as researchers in the securities industry as they pass secrets about public companies to hedge funds.

Rajaratnam's lawyer told jurors during opening statements last week that his client had the best research in the business and did not need to trade illegally.

The 52-year-old Kumar, of Saratoga, Calif., pleaded guilty to securities fraud charges last year and testified in the hopes of leniency at sentencing.

Kumar, who worked for McKinsey & Co. for more than 23 years before his October 2009 arrest, testified last week that he met Rajaratnam when they both attended the University of Pennsylvania's Wharton School in the early 1980s. After starting Galleon Group LLC

a family of hedge funds that shut down after his arrest Rajaratnam offered him hundreds of thousands of dollars for inside tips, Kumar said.

After the ATI-AMD deal went through, Rajaratnam called Kumar at home and "said something like, 'You're a star' or 'You're a hero,''' Kumar testified Monday.

When Rajaratnam later told Kumar that he would be rewarded with a $1 million kickback, "I almost fell off my chair,'' the witness said.