Keith Bedford/ReutersAnil Kumar, right, with his lawyer Thursday outside court in Manhattan after being sentenced for insider trading.Anil Kumar has been the consummate cooperator. Over the last two years, he detailed an illicit scheme with a billionaire hedge fund titan, decoded secretly recorded conversations and gave stunning performances in two of the largest insider trading cases in history.
The government thanked him by letting him off with no jail time.
On Thursday, Mr. Kumar, a former top partner at the prestigious consulting firm McKinsey & Company, was sentenced to two years of probation for insider trading. He will have to repay more than $2 million in ill-gotten gains.
Mr. Kumar has been a crucial guide and witness for the federal government in its widespread crackdown on insider trading.
The multiyear investigation has spanned the corporate ladder, from a low-level secretary to a director of some of the nation’s best-known companies. The Justice Department has garnered big wins. Of the 71 individuals charged with insider trading over the past three years, 65 have been convicted and the remaining six cases are pending. Mr. Kumar pleaded guilty in 2010.
Mr. Kumar proved particularly useful as prosecutors built their signature cases against Raj Rajaratnam, the billionaire who founded the Galleon Group, and Rajat K. Gupta, the former managing partner of McKinsey and a former director at Goldman Sachs and Procter & Gamble. In addition to providing crucial investigative leads, Mr. Kumar testified at the trials of both men, who were convicted on multiple counts of insider trading. Mr. Kumar was friends with Mr. Gupta and Rajaratnam, and shared confidential information with the hedge fund manager.
Mr. Kumar’s sentence underscores the importance of cooperators to the government. For all the new tools deployed to ferret out white-collar crime, including wiretaps and trade analysis, investigators still rely heavily on the low-tech strategy of turning conspirators into witnesses.
Others have benefited from their cooperation, as well. David Slaine wore a wire for two and half years and secretly recorded dozens of conversations with those suspected of insider trading, although he never testified at trial. In January, Mr. Slaine was given three years of probation for cooperation that “was nothing short of extraordinary,” prosecutors said.
By contrast, Danielle Chiesi, who pleaded guilty last year to being part of Mr. Rajaratnam’s scheme, refused to cooperate and was sentenced to two and a half years in prison. Mr. Rajaratnam was sentenced to 11 years in prison last year.
On the stand, Mr. Kumar was often contrite, repeatedly expressing his sorrow for getting involved with Mr. Rajaratnam in the insider trading ring. Mr. Kumar’s testimony was filled with details, including the specifics of conversations, meetings and memos dating back years.
Though he often butted heads with defense counsel, he rarely came across as hostile on the stand. Trial prosecutors praised Mr. Kumar as one of the most effective witnesses any of them had ever worked with in a securities fraud case.
“Kumar’s testimony was nothing short of devastating,” the prosecutor Reed Brodsky noted in a sentencing memorandum for Mr. Kumar. “Kumar was credible, precise and fully corroborated.”
Mr. Kumar started cooperating right away, prosecutors said. Shortly after investigators arrested him in October of 2009, he detailed how he tipped off Mr. Rajaratnam about inside information on various clients, like Advanced Micro Devices and eBay. All told, Mr. Kumar was paid more than $1.7 million for his tips, in part via an overseas account registered in his housekeeper’s name.
Though he had known Mr. Rajaratnam since the two attended the Wharton School of Business in the 1980s, he began divulging confidential information only in the mid-2000s. Initially, Mr. Rajaratnam suggested that he pay Mr. Kumar a salary of about $500,000 a year for his advice and guidance. There was no mention of insider information.
But as time progressed, Mr. Kumar testified, he felt that he owed something to Mr. Rajaratnam for his generosity. Soon, he was calling the Galleon founder with tips on mergers and layoffs at various companies. One particularly good year, Mr. Rajaratnam gave him a $1 million bonus.
At trial, Mr. Kumar said he was torn about his transgressions. He knew he was committing a crime and had violated the trust of his consulting clients, but he said he wanted the money and favors that a man like Mr. Rajaratnam could bestow on him. When the Federal Bureau of Investigation arrested him, Mr. Kumar fainted.
Mr. Kumar’s testimony during the trial of Mr. Gupta was particularly important. That case had far fewer wire taps than the one against Mr. Rajaratnam, and most of them were between Mr. Rajaratnam and his Galleon colleagues. Almost none involved Mr. Gupta speaking. The financial benefit to Mr. Gupta for leaking these boardroom secrets of Goldman Sachs and Procter & Gamble was also murkier, a point that defense lawyers sought to highlight.
Prosecutors used Mr. Kumar, who knew both men, to clarify business ties between Mr. Rajaratnam and Mr. Gupta. As part of his testimony, he showed jurors that Mr. Gupta had a vested financial interest in Mr. Rajaratnam’s success as a trader. The witness also helped undermine defense arguments that sought to minimize the connections between Mr. Gupta and Mr. Rajaratnam.
“By their very nature, criminal insider trading conspiracies are secretive, and the participants, who generally are highly intelligent and resourceful, are able to conceal their activities well and create false explanations for their trading based on material, nonpublic information,” Mr. Brodsky wrote in his memorandum. “Cooperators like Kumar are incredibly important in order to prosecute these cases.”