The cooperation of two former hedge fund managers in a 2007 insider trading case led to the arrest of seven traders and lawyers last November in the wide-ranging Galleon prosecutions, a U.S. prosecutor said on Thursday.

During a sentencing proceeding for former Chelsey Capital hedge fund manager Mark Lenowitz in the 2007 case, Assistant U.S. Attorney Andrew Fish told the judge that Lenowitz's cooperation led to the prosecution and cooperation of his onetime colleague at Chelsey Capital, David Slaine.

He said that in turn, the assistance of Slaine to the FBI and U.S. prosecutors led to seven arrests and charges in the Galleon case.

Fish said in Manhattan federal court that Lenowitz's cooperation was one of the catalysts for Slaine's cooperation that led to the additional arrests of trader Zvi Goffer and six others on November 5.

The arrest of the former Galleon employee came two weeks after Galleon hedge fund founder Raj Rajaratnam was arrested and charged with insider trading, shaking Wall Street and Silicon Valley companies last October and November.

U.S. District Court Judge Sidney Stein sentenced Lenowitz to six months of home confinement followed by three years of supervision and 160 hours of community service per year.

When Lenowitz was charged and pleaded guilty in 2007, he was among 13 people accused in a complicated case involving inside information from UBS AG's UBS Securities LLC affiliate and Morgan Stanley . Lenowitz pleaded guilty to charges of conspiracy and securities fraud.

Slaine was added to that case and pleaded guilty in December last year under an agreement to cooperate with the government, the Manhattan U.S. Attorney's office announced on Tuesday.

The case is USA v Lenowitz, U.S. District Court for the Southern District of New York, No. 07-416

(Reporting by Grant McCool, editing by Gerald E. McCormick)

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