Key Insider Trading Witness Avoids Jail Time

Anil Kumar, the former McKinsey partner who admitted being a key source of information for convicted inside trader Raj Rajaratnam, was sentenced to two years probation on Thursday after prosecutors hailed Kumar’s “extraordinary” cooperation. He could have been sentenced to as much as 25 years.

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Kumar, 53, was a key witness in Rajaratnam’s trial last year. Earlier this year, he also testified against his mentor, former McKinsey managing partner Rajat Gupta. Both men were convicted.

Kumar was among the first defendants to plead guilty in the government’s sweeping insider trading investigation. He pleaded guilty to one count of conspiracy and one count of securities fraud in January, 2010, and immediately began cooperating with prosecutors.

He detailed how Rajaratnam, a former classmate at the University of Pennsylvania’s Wharton School of Business, recruited Kumar in 2003 to share inside information about McKinsey clients, including chip maker Advanced Micro Devices . Kumar testified that he continued sharing information with Rajaratnam until the two were arrested in 2009.

At Rajat Gupta’s trial, in which the former McKinsey head and Goldman Sachs board member was accused of funneling inside information to Rajaratnam, prosecutors used Kumar’s testimony to counter defense claims that Gupta and Rajaratnam were not close associates.

In a letter to United States Circuit Judge Denny Chin urging a light sentence, Assistant U.S. Attorney Reed Brodsky wrote, “Kumar’s significant, powerful and timely cooperation has provided substantial assistance to the Government in the investigation and prosecution of two of the most high profile defendants convicted of illegal insider trading in history.”

At Thursday’s sentencing hearing, Judge Chin also praised Kumar’s cooperation, noting that he never accessed the money Galleon sent him.

Kumar was contrite.

“No matter what happens today, I can’t go back to my former industry,” he told the judge. “I will always be followed by questions and whispers.”

In addition to the two years probation, Kumar was ordered to pay a $25,000 fine and forfeit $2.26 million.

— By CNBC's Scott Cohn

— Additional reporting by Jim Forkin.