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Kumar Sentencing Memorandum Case 1:10-cr-00013-DC Document 47-1 Filed 07/16/12 Page 1 of 20 U.S. Department of Justice United States Attorney Southern District of New York The Silvio J. Mollo Building One Saint Andrew’s Plaza New York, New York 10007 July 16, 2012 By Hand Delivery The Honorable Denny Chin United States Circuit Court Judge United States Courthouse 500 Pearl Street New York, New York 10007 Re: United States v. Anil Kumar, 10 Cr. 13 (DC) Dear Judge Chin: The Government respectfully submits this letter to advise the Court of the pertinent facts concerning the substantial assistance that defendant Anil Kumar has rendered in the investigation and prosecution of other persons. In light of these facts, the Government moves, pursuant to Section 5K1.1 of the Sentencing Guidelines, that the Court sentence the defendant in light of the factors set forth in Section 5K1.1(a)(1)-(5) of the Guidelines. On or about January 7, 2010, Kumar pleaded guilty to Counts One and Two of the above-captioned Information. Count One of the Information charged Kumar with conspiring with other individuals to commit securities fraud, in violation of Title 18 United States Code, Section 371, in connection with a scheme to engage in insider trading from in or about 2004 through in or about 2009. This charge carries a maximum sentence of five years’ imprisonment, a maximum term of three years’ supervised release, a maximum fine, pursuant to Title 18, United States Code § 3571, of the greatest of $250,000, twice the gross pecuniary gain derived from the offense, or twice the gross pecuniary loss to a person other than the defendant as a result of the offense, and a mandatory $100 special assessment. Case 1:10-cr-00013-DC Document 47-1 Filed 07/16/12 Page 2 of 20 Honorable Denny Chin July 16, 2012 Page 2 Count Two of the Information charged Kumar with securities fraud, in violation of Title 15, United States Code Sections 78j(b) and 78ff, and Title 18, United States Code, Section 2, in connection with a scheme to defraud by engaging in insider trading with respect to shares of Advanced Micro Devices Inc. (“AMD”). This charge carries a maximum sentence of 20 years’ imprisonment, a maximum term of three years’ supervised release, a maximum fine of $5 million, and a mandatory $100 special assessment. I. Kumar’s Background From approximately 1986 through on or about November 30, 2009, Kumar worked at McKinsey & Company ("McKinsey"). Kumar worked initially as an associate, then a project manager, then a junior partner, and then a senior partner or director. McKinsey fired Kumar shortly after his arrest on or about October 16, 2009. On or about October 16, 2009, Kumar, Rajaratnam, and others were arrested by complaint on charges of insider trading. II. Kumar’s Criminal Conduct 1. Kumar’s Illegal Agreement With Rajaratnam From in or about 2004 through in or about 2009, Kumar repeatedly violated his fiduciary and other duties of confidentiality to McKinsey and its clients by disclosing secret information to Rajaratnam in exchange for money, friendship, and the prospect of future business opportunities. Kumar understood that Rajaratnam was trading based in part on Kumar’s information and that Kumar was violating the law by disclosing the information to Rajaratnam. Kumar became friends with Rajaratnam at the Wharton School of the University of Pennsylvania in or about 1982. From in or about 1983 through in or about 1993, Kumar kept in touch with Rajaratnam while Rajaratnam worked at Needham & Company as a technology analyst. From in or about 1993 through in or about 1999, Kumar worked for McKinsey in India and lost touch with Rajaratnam. After Kumar returned to the United States, in or about 2001, Kumar asked Rajaratnam to contribute money to the Indian School of Business. Kumar and Rajat Gupta co-founded the Indian School of Business and were raising money for the school. In response, Rajaratnam made an anonymous $1 million Case 1:10-cr-00013-DC Document 47-1 Filed 07/16/12 Page 3 of 20 Honorable Denny Chin July 16, 2012 Page 3 contribution, and Kumar informed Gupta about Rajaratnam's contribution. From the early 1990s through 2009, Rajaratnam was the head of Galleon Group (“Galleon”), a multi-billion dollar hedge fund. Its headquarters were located in Manhattan. Rajaratnam managed the technology fund at Galleon, and he was in charge of nearly every aspect of the firm. Galleon had multiple portfolio managers who oversaw investments in particular funds specializing in particular areas, including technology, financial services, communications, and consumer products. In or about September 2003, in the context of discussing whether McKinsey could provide Rajaratnam and Galleon with advice and other services, Rajaratnam offered to pay $500,000 a year to Kumar for Kumar’s insights. Kumar told Rajaratnam that Kumar was not allowed to receive money for consulting services outside of McKinsey work. Rajaratnam, however, told Kumar that Rajaratnam would help Kumar conceal the payments from McKinsey. Rajaratnam told Kumar to wire the money offshore to an account in someone else’s name, and then wire the money back into Galleon Group into an account at the hedge fund in the name of Kumar's housekeeper, Manju Das. Kumar agreed, initially believing Rajaratnam wanted legitimate business trend advice. Every few months thereafter, from in or about 2004 through in or about 2006, Rajaratnam wired approximately $125,000 to an account in Europe in the name of an entity that was not associated with Kumar directly, and the money was then wired back into a Galleon account in the name of Manju Das. Once he accepted the money, Kumar felt obligated to answer Rajaratnam’s questions seeking material, nonpublic information about McKinsey’s clients. Kumar fully understood that by providing Rajaratnam with nonpublic information about McKinsey’s clients that Kumar was violating one of the most sacred McKinsey policies—maintaining the confidentiality of the secrets of McKinsey’s clients. Kumar had signed McKinsey’s certifications agreeing not to violate his duty of confidentiality, and Kumar had signed a confidentiality agreement with certain clients (including AMD) on McKinsey’s behalf. During his scheme with Rajaratnam, Kumar repeatedly violated his duties of confidentiality by sharing client secrets with Rajaratnam. Case 1:10-cr-00013-DC Document 47-1 Filed 07/16/12 Page 4 of 20 Honorable Denny Chin July 16, 2012 Page 4 2. Kumar’s Illegal Tips To Rajaratnam In 2004 And 2005 Starting in or about 2004, Rajaratnam asked Kumar for information about AMD’s revenues, sales, and profits. Rajaratnam also asked Kumar for information about AMD’s guidance regarding its future earnings. Kumar had the privilege to attend senior management meetings with AMD’s top ten executives. During these meetings, Kumar learned secret information about AMD’s financial performance, and Kumar disclosed this information to Rajaratnam. In or about 2004, Kumar also disclosed to Rajaratnam that AMD was in discussions to sell a new chip called Opteron to Dell and Hewlett-Packard. Rajaratnam told Kumar that this was very useful information. In or about February 2004, AMD was able to obtain a $400 million contract to install Opteron chips in Hewlett-Packard products. Kumar informed Rajaratnam about this development prior to its public announcement on or about February 24, 2004. Subsequently, Kumar informed Rajaratnam regarding the negotiations between AMD and Hewlett-Packard for Hewlett-Packard to transfer a lot of its business from Intel to AMD and become a major AMD customer. Rajaratnam kept asking Kumar if the deal was on track, and Kumar kept updating Rajaratnam that it was on track. Kumar told Rajaratnam that this was going to be fabulous news for AMD. The deal was announced in or about the Fall of 2004. Subsequently, in late 2004 and early 2005, Kumar told Rajaratnam that AMD was going to spin out its memory business, leaving behind a much stronger computer processing business. On or about April 14, 2005, AMD announced that it was spinning out its memory business, which became a new company called Spansion. During 2004 and 2005, Rajaratnam told Kumar that Rajaratnam was making good money on AMD and that Kumar’s information about AMD was valuable to Rajaratnam. Things changed by late 2005 when Rajaratnam told Kumar that Kumar’s information about the financial performance of AMD and Kumar’s other clients were not as detailed as Rajaratnam expected. Rajaratnam wanted to move toward an arrangement whereby Rajaratnam would share a portion of profits earned with Kumar’s information with Kumar. Rajaratnam proposed buying shares of AMD stock and the stock of other companies based on the information Kumar provided, and Kumar refused. Kumar was more comfortable with a consulting arrangement with Rajaratnam; Kumar believed that his receipt of shares would leave a paper trail and was more vulnerable to being Case 1:10-cr-00013-DC Document 47-1 Filed 07/16/12 Page 5 of 20 Honorable Denny Chin July 16, 2012 Page 5 uncovered. In 2006, Kumar and Rajaratnam agreed that Rajaratnam would pay Kumar at the end of each year based on the value of Kumar’s information. Kumar preferred this arrangement which was similar to arrangements that he had with McKinsey clients. 3. Kumar’s Illegal Tip About AMD’s Acquisition Of ATYT From in or about late 2005 through in or about July 2006, Kumar tipped Rajaratnam about AMD’s confidential plans to acquire ATI Technologies (“ATYT”). As AMD’s outside consultant, Kumar was part of a small group of individuals who came up with the plan to acquire ATYT.
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