The SEC continues to expand the Galleon insider trading case, while the U.S. Attorney’s office rolls up more guilty pleas. SEC v. Galleon Management, LP, Civil Action No. 09-CV-8811 (S.D.N.Y.). In January, Anil Kumar pled guilty to one count of securities fraud and one count of conspiracy to commit securities fraud as discussed here. Mr. Kumar, a friend of Galleon founder Raj Rajaratnam, is a former senior partner and director of McKinsey, a global business consulting firm. He is also one of the claimed sources of inside information identified by the U.S. Attorney’s Office and the SEC from the beginning of the cases.

A Second Amended Complaint filed by the SEC on Friday provides new insight into the claimed relationship between Mr. Kumar and Galleon’s founder. See Litig. Rel. 21397 (Jan. 29, 2010). According to the SEC’s new complaint, in 2003 Mr. Rajaratnam agreed to pay Mr., Kumar $500,000 per year in return for inside information obtained from clients of McKinsey. Pursuant to this arrangement, Mr. Kumar was paid between $1.75 to $2 million by Mr. Rajaratnam through 2007, according to the complaint. The payments were channeled through a third party overseas. Eventually those payments were brought back to this country by Mr. Kumar and invested in Galleon under the name of a third party. While at Galleon, the funds grew to about $2.6 million.

In return for the payments, Mr. Kumar furnished Mr. Rajaratnam with inside information. For example, in 2004 Mr. Kumar provided information about AMD as described in earlier SEC and USAO filings. In 2006, Mr. Kumar again furnished Mr. Rajaratnam with inside information. In that instance, the information concerned the potential acquisition of ATI by AMD. Galleon purchased shares in ATI. As the deal negotiations progressed, Mr. Rajaratnam was furnished with updates. When this deal was announced in July 2006 Galleon made a profit of over $19 million.

The arrangement apparently ended in October 2007 when Mr. Rajaratnam told Mr. Kumar that he should no longer keep his investment at Galleon. Mr. Rajaratnam indicated that he was under increased scrutiny.

Just days prior to the filing of the SEC’s Second Amended Complaint, seven more individuals were indicted as part of the on-going Galleon insider trading investigation. The individuals named in that indictment, discussed here, were among fourteen previously identified. As this investigation goes forward, there seems to be little doubt that the USAO will bring more indictments and obtain more guilty pleas. At the same time, the SEC can be expected to continue to expand its case.


Trends in SEC Enforcement 2010, a web cast by Thomas O. Gorman, Tuesday, February 2, 2010 from 12:00 p.m. to 1:00 p.m. Sponsored by West Legal Ed and Celesq Legal Ed.