UPDATE 1-Galleon winding down its funds - Rajaratnam

* Says exploring 'various alternatives' for the business

* Potential buyers emerge - source

BOSTON, Oct 21 - Hedge fund firm Galleon Group said it is winding down its funds, less than a week after its founder was arrested and charged with running one of the biggest insider-trading schemes ever involving a hedge fund.

"I have decided that it is now in the best interest of our investors and employees to conduct an orderly wind down of Galleon's funds while we explore various alternatives for our business," Raj Rajaratnam, the fund firm's 52-year-old billionaire founder, said in a letter to investors and employees on Wednesday.

A source familiar with the matter said the fund firm, which managed $3.7 billion as of last Friday, has been approached by potential buyers. The source gave no details.

Since Rajaratnam's arrest, investors in the fund have tried to pull money out, and dozens of the firm's 130 employees are said to be looking for jobs elsewhere in the industry.