Apparently it is quite easy (and legal) for law enforcement to use your cell phone as an eavesdropping tool. With the right software downloaded to the phone, it becomes a microphone and transmits all nearby conversations to a third party. This can be done without the owner’s knowledge, and the eavesdropping occurs even when the phone is turned off. There is, however, some question as to the exact methods used by the FBI in this specific case. They may have installed traditional hardware bugs in the suspects’ phones, but some experts believe they used the software method.
For the paranoid, there is this link, explaining how to detect/circumvent software bugs on your phone. More information on how a cell phone can become a bug is at this link (scroll down to the article entitled “Cell Phones Become Instant Bugs!”).