Protege testifies against McKinsey mentor Gupta

Fri Jun 1, 2012 4:52pm EDT

* Trial of ex-McKinsey head, Goldman director Rajat Gupta

* Protege Anil Kumar called by prosecution in NY court

* Gupta denies insider-trading charges over board secrets

By Grant McCool

NEW YORK, June 1 (Reuters) - When business guru Rajat Gupta and his protege, Anil Kumar, worked together to expand management consultancy McKinsey & Co in the 1990s, a date in court years later surely was not part of the plan.

At Gupta's criminal trial on insider-trading charges on Friday, Kumar testified for the prosecution, describing the connections both of them had to now-imprisoned Galleon Group hedge fund founder Raj Rajaratnam.

Kumar, who has pleaded guilty to tipping Rajaratnam with inside information he gleaned from his work at McKinsey, described discussions the three men had in 2006 about forming an investment fund focused on South Asia.

"Mr Gupta wanted to create one of the best asset management funds in India," said Kumar, 53, speaking almost in a monotone before a jury in U.S. District Court in New York.

The former senior partner at McKinsey said Gupta "wanted something much broader than a hedge fund" and later in the year after other partners were on board, "they had a joint aspiration to raise about $2 billion."

Gupta, 63, once sat at the pinnacle of the business world, spending 34 years at McKinsey and rising to the role of global head. He has pleaded not guilty to charges that he provided Rajaratnam with confidential information between March 2007 and January 2009 while serving on the boards of Goldman Sachs Group Inc and Procter & Gamble Co.

His lawyers say the government's case is circumstantial and speculative and that Gupta had nothing to gain financially by giving inside stock tips to Rajaratnam, his onetime friend and business associate.

"MINI-RAJAT"

Kumar is a key witness for the prosecution because he knew both Rajaratnam and Gupta for decades. Gupta and Kumar were born in India and Rajaratnam in Sri Lanka. They are all U.S. citizens.

He also testified at Rajaratnam's insider-trading trial in the same courthouse a year ago. The hedge fund manager was convicted by a jury and is serving an 11-year prison term.

When Kumar walked to the witness stand, hands held in front of him and eyes cast slightly downward, Gupta's gaze followed him. Gupta then raised his eyebrows as he turned to his wife and daughters in the gallery, who have attended the trial since it began on May 21.

Kumar's testimony is expected to continue on Monday. Kumar is cooperating in the case in hopes of being granted leniency when he is sentenced later this year. He pleaded guilty to one charge of securities fraud and one charge of conspiracy in January 2010.

A spokeswoman for McKinsey & Co declined to comment on the trial.

Also next week, in what is expected to be the final week of the trial, Goldman Chief Executive Officer Lloyd Blankfein is set to testify for the prosecution.

In last year's Rajaratnam trial, the jury heard dozens of conversations recorded by FBI computers on court-approved wiretaps of Rajaratnam's mobile phone.

In one call on July 29, 2008, between Rajaratnam and Gupta, the pair are heard discussing Kumar. The jurors in the Gupta trial heard the same wiretap played in court last week.

"He is constantly ... scheming is not the right word, but constantly trying to figure what other people's angles are," Rajaratnam said to Gupta.

At another point Rajaratnam says of Kumar, "I'm getting a feeling that he's trying to ... you know, be a mini Rajat, right?"

Rajaratnam goes on to say: "And I, you know, honestly, Rajat, I'm giving him a million dollars a year for doing literally nothing."

Gupta then says, "I think you're being very generous."

The case is USA v Gupta, U.S. District Court for the Southern District of New York, No. 11-907.