Prosecutors are "tarring" 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 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 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 Gupta had violated the policies of McKinsey by knowing that Rajaratnam was paying a million dollars to Anil Kumar for giving the Sri Lankan native insider information about various companies.
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 Rajaratnam and Gupta for years.
A batchmate of Rajaratnam's at the Wharton Business School and a former McKinsey partner, 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.
As Kumar walked into the courtroom to take the witness stand, Gupta fixed his gaze at him.
Kumar took his seat on the witness stand without even once glancing at Gupta. Kumar had also worked closely with Gupta in 1997 when the two co-founded the Indian School of Business in Hyderabad.
Kumar said he later introduced Gupta to Rajaratnam after the hedge fund manager made an "anonymous" one-million-dollar donation to the school.
Before Kumar was called to begin his testimony, the prosecution wanted to show to the jurors that Gupta was aware of Kumar being paid by Rajaratnam for passing confidential information to the Galleon hedge fund founder and yet Gupta did not take any action against Kumar.
Instead, according to a July 29, 2008 phone call, when Rajaratnam tells Gupta that "I'm giving him (Kumar) a million dollars a year for doing literally nothing," Gupta replied, "yeah...". "I think you're being very generous."
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 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 Gupta disapprove of the payments Rajaratnam made to McKinsey employee Kumar.