“The courtroom tussle between a government lawyer and a top witness escalated Wednesday, as the two argued over the arcane, $1 billion transaction at the heart of the case against former Goldman Sachs Group Inc. executive Fabrice Tourre.

“The feisty exchange involving Paolo Pellegrini, a former lieutenant to billionaire hedge-fund manager John Paulson, highlights the hurdles the Securities and Exchange Commission faces as it tries to prove Mr. Tourre misled investors.

“Mr. Tourre has denied wrongdoing.

“The testimony of Mr. Pellegrini—requested by the SEC itself—was expected to be difficult, because he played a key role in the deal, and hedge fund Paulson & Co. is facing a lawsuit over the transaction at issue, based primarily on his actions. Even before the trial started, the SEC asked the judge to label Mr. Pellegrini and at least three other of its witnesses as “hostile,” a term that indicates their testimony may be prejudiced in favor of the defendant.”

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