updated 3/14/2011 3:06:44 PM ET 2011-03-14T19:06:44

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.

  1. More must-see stories
    1. The Hartford Courant, Political
      Wild Wall St.

      Has the market volatility got you nervous? These cartoons may give you a little comic relief.

    2. Cyber-thieves create fake Kelley Blue Book site
    3. US says Reebok toning shoes don't really
    4. Can you live on $9 an hour? Play the game

"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.

Copyright 2011 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


Discussion comments


Most active discussions

  1. votes comments
  2. votes comments
  3. votes comments
  4. votes comments

Data: Latest rates in the US

Home equity rates View rates in your area
Home equity type Today +/- Chart
$30K HELOC FICO 3.79%
$30K home equity loan FICO 4.99%
$75K home equity loan FICO 4.69%
Credit card rates View more rates
Card type Today +/- Last Week
Low Interest Cards 13.83%
Cash Back Cards 17.80%
Rewards Cards 17.18%
Source: Bankrate.com