UPDATE 2-Key cooperator in Galleon insider cases avoids prison

* Anil Kumar gets 2 years probation, to forfeit $2.26 mln

* Prosecutors called defendant's cooperation extraordinary

* Kumar aided in convictions of Raj Rajaratnam, Rajat Gupta

By Basil Katz

NEW YORK, July 19 (Reuters) - A former McKinsey & Co partner whose devastating testimony helped convict Galleon Group founder Raj Rajaratnam and former Goldman Sachs Group Inc director Rajat Gupta of insider trading was sentenced on Thursday to two years probation.

Anil Kumar, 53, was arrested on the same day in 2009 as Rajaratnam, his friend of 25 years. But instead of fighting charges that he leaked stock tips to the Galleon Group founder, Kumar immediately became one of the U.S. government's most valuable assets in its wide-ranging probe of illicit trading on Wall Street.

Kumar committed "quintessentially dishonest criminal conduct," Judge Denny Chin said at Thursday's sentencing in Manhattan federal court. Yet, Kumar's assistance to the government, charity and contrition warranted a break from prison, the judge said.

"I do not believe that the ends of justice would be served by even a modest term of imprisonment," said Chin, the same judge who in 2009 sentenced Bernard Madoff to 150 years in prison. Besides probation, the judge ordered Kumar to forfeit $2.26 million.

Rajaratnam is serving an 11-year prison term after being convicted last year. Gupta, a former board member at Goldman, was convicted in June. He faces up to 25 years in prison when he is sentenced in October.

Kumar, who had faced up to 25 years in prison under the charges he faced, testified for four days at Rajaratnam's trial last year, and took the stand again a year later against his former mentor Gupta, who headed elite business consultancy McKinsey & Co for nine years.

At Thursday's hearing, Kumar, wearing a gray suit, sat with his head bowed and hands clasped as the judge began pronouncing his sentence. Earlier, he told the judge, his voice breaking at times, that cooperating had been the only way to atone.

"This public path has brought extreme disgrace yet it has been essential to my redemption," Kumar said. "I stand in this courtroom today completely and totally shamed by the conduct that has brought me before your honor."

It was only after the judge had left the bench that Kumar smiled. His lawyers sitting on either side of him took his hands in theirs. He then embraced his wife and shook hands and hugged friends and supporters sitting in the courtroom.

Kumar pleaded guilty in January 2010 to one count of conspiracy to commit securities fraud and one count of securities fraud for giving Rajaratnam secret tips.

Unlike Adam Smith, a former Galleon employee turned government cooperator who was also sentenced to two years probation, Kumar immediately began helping the government, Manhattan federal prosecutors told the judge in a letter Monday.

In the letter, prosecutors said Kumar was essential in helping the government improve its cases, and convict Rajaratnam and Gupta, "two of the most important securities fraud trials in history." They said Kumar's cooperation was "nothing short of extraordinary."

KUMAR PAID $1.75 MILLION

At Thursday's hearing, the judge also said that despite having been paid $1.75 million by Rajaratnam, Kumar deserved a break because "the intent here was not greed."

Rather, prosecutors and the judge said that Kumar was drawn in by Rajaratnam and had felt obliged to feed him information.

At Rajaratnam's trial, jurors even heard the Sri Lankan-born billionaire mock Kumar on a phone call with Gupta, who was then serving on Goldman's board.

"He is constantly ... scheming is not the right word, but constantly trying to figure what other people's angles are," Rajaratnam was heard saying on a court authorized recording of the 2008 call.

Indian-born Kumar and Rajaratnam graduated the same year from the Wharton School at the University of Pennsylvania. After business school, Kumar moved to California where he began working for McKinsey. In 1993, he helped start the McKinsey office in New Delhi.

After Rajaratnam in 2001 donated $1 million to the Indian School of Business, which Kumar helped found, that the two began communicating regularly. Three years later, Anil began feeding Rajaratnam secret tips.

The case is USA v. Anil Kumar, U.S. District Court, Southern District of New York, No. 10-cr-00013.