Chan was the first person named in the probe that has shocked shareholders and the business community in Hong Kong, and threatened to cut into the knot binding its clubby tycoon-dominated economy with the former British colony's new government.

Investigators arrested ousted Sun Hung Kai chairman Walter Kwok, 61, on May 3, pulling him into an investigation that has already claimed his estranged brothers Thomas, 60, and Raymond, 58. It has also ensnared a childhood friend, Rafael Hui, Hong Kong's chief secretary from 2005-2007.

Chan, 65, is the executive in charge of land purchases at Sun Hung Kai, Asia's largest and the world's second biggest developer with a stock-market value of $30 billion.

The company released a statement saying Chan was arrested by Hong Kong's Independent Commission Against Corruption (ICAC) in connection to alleged bribery.

The city's biggest graft scandal in years dates to the start of 2011, according to a source familiar with the matter, when Hui came under scrutiny.

The Kwok brothers have been assisting the investigation since late last year, when they were first interviewed by the ICAC, a source told Reuters. The source did not want to be identified because ICAC investigations are highly confidential.

Payments made to Hui while he was chief secretary are at the heart of the investigation, with the ICAC looking into bribery and "misconduct in public office". Reuters reported on April 25 that payments totaling more than $2.5 million are involved [ID:nL3E8FP300].

Chan, who has gone back to work at Sun Hung Kai, joined the developer in 1973 and has been on the board since 1987. He is also a nonexecutive board member of Sun Hung Kai subsidiary SUNeVision Holdings (8008.HK). Sun Hung Kai paid him HK$11.21 million ($1.4 million) for the year ended June 2011.

The Hong Kong Economic Journal reported on April 26 that the ICAC sent a letter to securities brokerages in Hong Kong seeking information on six people: Hui and Thomas Chan, as well as Selina Ho, Chan's wife, plus Chan's son and daughter, Kevin Chan and Carrie Chan, and another man, Francis Kwan.

The ICAC is seeking information on financial transactions between the six, according to the report. Kwan, a former banker and chief operating officer of the Hong Kong Futures Exchange, is a friend of Hui's, according to a source familiar with the matter.

Kwan did not respond to calls seeking comment, and neither has Hui.

(Editing by Jeremy Laurence)

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