A Morgan Stanley banker is under investigation for allegedly leaking information about a pending acquisition by Advanced Micro Devices ("AMD"), a person with direct knowledge of the matter told DealBook on Sunday.

Kamal Ahmed, a managing director in Morgan Stanley’s office in Menlo Park, Calif., is accused of passing the illegal tip on to an unidentified person who then passed it on to Raj Rajaratnam, the founder of the Galleon Group hedge fund.

Mr. Rajaratnam is the hedge fund executive at the center of the government’s sprawling insider trading investigation. His trial is set to begin Feb. 28.

The allegations against a Morgan Stanley banker emerged on Friday in a court filing by Mr. Rajaratnam’s lawyers. The filing included a redacted copy of a letter from federal prosecutors to John M. Dowd, a lawyer for Mr. Rajaratnam.

Mr. Ahmed’s name was redacted from the filing, but not his Morgan Stanley affiliation. The Wall Street Journal earlier identified Mr. Ahmed as the Morgan Stanley banker cited in the letter.

Morgan Stanley has placed Mr. Ahmed on leave while it conducts an inquiry into the alleged misconduct. He has not been accused of any wrongdoing.

“Mr. Ahmed is cooperating with Morgan Stanley’s internal investigation and I’m confident that at the end of the day it will be shown that he did nothing illegal or unethical,” Douglas Tween, Mr. Ahmed’s lawyer, said in an interview on Sunday.

A Morgan Stanley spokesman said in a statement: “If proven to be true, the alleged conduct would be a violation of Morgan Stanley’s values and policies. We have placed the banker on leave and are fully cooperating with the government’s investigation.”

On July 23, 2006, A.M.D. announced that it had agreed to acquire ATI Technologies for $5.4 billion. Morgan Stanley advised A.M.D. on the transaction. Galleon, prosecutors have alleged, bought nearly five million shares of A.M.D. before the deal.

Anil Kumar, a former executive at the consulting firm McKinsey & Company, has previously said that he gave Mr. Rajaratnam information about the pending A.M.D.-ATI deal. Mr. Kumar pleaded guilty last year and has been cooperating with prosecutors, saying he received $2.6 million from Mr. Rajaratnam for providing such information.

Mr. Rajaratnam has denied paying him.

Since the government arrested Mr. Rajaratnam and October 2009, 40 individuals have been charged with insider trading crimes. Of those, 25 have pleaded guilty.

Mr. Ahmed has worked at Morgan Stanley since 1999, and was named a managing director in 2007. He advised on a number of large technology deals, including advising Hewlett-Packard on its $2.7 billion acquisition of 3Com in 2007.

DealBook - A Financial News Service of The New York Times
January 23, 2011, 11:21 pm
Morgan Stanley Banker Is Said to Pass Along Illegal Tip
By PETER LATTMAN