The announcement of the Galleon Hedge Fund insider trading case in Oct 2009.

A former senior partner of US management consultants, McKinsey & Co, admitted in a court on Thursday that Galleon Hedge Fund founder and billionaire, Raj Rajaratnam, paid him $1.75 million in exchange for tips on clients of the consulting firm, giving prosecutors a potentially key break in the insider-trading case.

Anil Kumar pleaded guilty to conspiracy and securities fraud at a hearing Thursday before US District Judge Denny Chin in Manhattan. He invested some of the money in Galleon and made a total of $2.6 million.

Kumar, 51 years old, said he was approached by Rajaratnam - - a friend from their time at the Wharton School at the University of Pennsylvania in the early 1980s - -  in late 2003 or early 2004 and began providing inside tips to him about McKinsey clients as far back as 2004, including on chip maker Advanced Micro Devices's (AMD) plans to acquire ATI Technologies in 2006.

In a court filing Tuesday, prosecutors had alleged that Rajaratnam received tips about the AMD-ATI merger between March 2006 and July 2006 and his Galleon Technology Funds made at least $19 million in illegal profits as a result.

Prosecutors said Rajaratnam received the tips from a source to whom he "had begun making large payments in exchange for inside information in or about 2004" and that he is responsible for at least $36 million in illicit profits from improper insider trading.

Kumar, a native of India, said the Sri Lankan born Rajaratnam offered to pay him $500,000 a year for confidential information about certain clients he was working for. In order to hide the cash payments, Kumar said that Rajaratnam opened a Swiss bank account for him under a different name and then funneled the payments to the account, and eventually into Galleon’s hedge funds. Rajaratnam praised Kumar for the information he provided, at one point telling him, “Anil, you are a hero,” according to prosecutors.

The 51-year old, who was a key partner at McKinsey, was reported to have been in an emotional state as he said he“apologises to his colleagues for the shame they have suffered.”

Kumar was based at Santa Clara, the location of chip giant Intel, in the US Silicon Valley. He was a key link with his native India, where he was a co-founder of the Indian School of Business.

Executives from IBM and Intel have also been charged in the case and Galleon Hedge Fund founder Raj Rajaratnam, is expected to face expanded new charges in the next week.

Kumar faces 20 years in prison on the fraud charge and he has agreed to forfeit $2.6 million as part of his plea. His cooperation means that he may serve about seven years.

"Anil Kumar recognizes the fact that he has committed a serious violation of the federal securities laws," said Robert G. Morvillo, his lawyer, in a statement. "He accepts responsibility for his transgression and will work with both the Office of the United States Attorney for the Southern District of New York and the [U.S. Securities and Exchange Commission] in an attempt to rectify the consequences of his conduct."

“Raj Rajaratnam did not make payments to Mr. Kumar or anyone else in return for providing inside information,” John Dowd, a lawyer for Rajaratnam said in a statement.

One of the co-defendants in what is being called the biggest hedge fund insider trading case ever is pleading guilty, with CNBC's Scott Cohn: