Last week's arrest of an employee at a research firm on insider-trading allegations shows how authorities are using the fruits of their case against the Galleon Group hedge fund (founder and chief Raj Rajaratnam) to snare market players in a more wide-ranging insider-trading probe, The Wall Street Journal reported.

To help build their case against the employee, Don Ching Trang Chu, federao authorities used the cooperation of a former hedge fund manager, Richard "C.B." Lee, according to the criminal complaint against Mr. Chu. (Mr. Lee pleaded guilty in the Galleon case.)

Mr. Chu's arrest, the first of what could be several in the case, is the latest turn in a fast-moving investigation, which is expected to continue to unfold through the end of the year.  The government concurrently is gaining momentum in its case against Raj Rajaratnam after the courts approved use of wiretaps against Wall Street investors - re: secret recordings of thousands of phone calls of Mr. Rajaratnam and 130 of his friends, relatives and associates.

The ruling may incentivize Mr. Rajaratnam into finally changing his plea to "guilty," in that he now will be facing stronger evidence.  Of course, Mr. Rajaratnam has offered no indication that he plans to do so.

    Recordings of Mr. Chu's Statements to Mr. Lee.    According to authorities, Mr. Chu, 56, was recorded making statements to Mr. Lee, who was secretly cooperating with the government at the time.  The complaint alleges Mr. Chu provided inside information on a technology company to Mr. Lee and arranged meetings for him with public company employees to receive confidential information.  In one recorded conversation, the complaint said, Mr. Lee asked Mr. Chu if he and colleagues were "nervous."  Mr. Chu allegedly acknowledged, "I'm nervous." 

Mr. Chu, reportedly a specialist on Asia, allegedly told Mr. Lee the SEC is "too strong; in Asia, the SEC can't do too much."  He also warned the manager to avoid using even personal email to discuss their business: "just talk…don't, don't put it down in writing. Dangerous."

To continue, click onto:  [WSJournal, 'Galleon Probe...', 11/26]