New York, Jun 2 (IANS): A US federal court judge trying Rajat Gupta on insider trading charges has observed that prosecutors were "tarring" the former Indian-American managing director of McKinsey & Co. with an unrelated separate scheme.

"That's the problem," US District Judge Jed Rakoff said when Gupta's lawyer, Gary Naftalis, argued in a hearing Friday outside the jury's presence that prosecutors were attempting to retry the case of convicted hedge fund billionaire Rajaratnam to get his client.

Rakoff ruled that he wouldn't allow Anil Kumar, another Indian American employee of McKinsey, to testify about any illicit payments received by him from Rajaratnam or say they were in violation of McKinsey policy because prosecutors failed to show the payments went against any specific McKinsey policy.

Rakoff said Kumar, who has pleaded guilty to insider trading charges, isn't accused of being a co-conspirator with Gupta and was instead involved in a separate insider-trading scheme with Galleon Group co-founder Rajaratnam that didn't include Gupta.

Kumar testified at Rajaratnam's trial last year that from 2003 to 2009 the two men had an agreement where he passed inside information about companies he was advising to Rajaratnam, in exchange for payments of as much as $1 million a year to an offshore account.

Kumar, a classmate of Rajaratnam's at the Wharton School of the University of Pennsylvania, told the court Friday that in 1997 he helped co-found a business school in India with Gupta.

"I put my heart and soul into founding a business school in India," Kumar said. "Mr. Gupta and I worked very closely in partnership."

Kumar said Rajaratnam gave an anonymous donation of $1 million for the school's founding and that he told Gupta about Rajaratnam's donation.

Gupta and Rajaratnam became more acquainted after Gupta started a foundation to help victims of an earthquake in India, he said.

Kumar, whom assistant US attorney Reed Brodsky described as a "protege" of Gupta's, said that he met Gupta and Rajaratnam in 2006 to discuss starting an investment fund.

Gupta, he said, had spoken to Asian business leaders and told him he "wanted to see if there was a way to bring these leaders of asset management together to found a new asset management firm."

"They had a joint aspiration to raise about $2 billion for the fund," Kumar said.