US charges 47 forex traders with fraud

NEW YORK, Nov 19 (AFP) - US federal prosecutors filed charges Wednesday against 47 traders in the foreign exchange market, after an FBI undercover operation exposed a murky world of fraud, corruption and narcotics trafficking.

The majority of suspects were arrested in raids Tuesday and Wednesday that saw expensive-suited traders hauled out of their offices in Wall Street and elsewhere.

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One group was grabbed as they gathered for cocktails in a skyscraper in New York's financial district, prior to what they believed would be a gambling junket to Atlantic City.

Instead the gathering was raided in a sting operation by armed FBI agents.

US Attorney James Comey said the 18-month investigation -- code-named "operation wooden nickel" -- had exposed "a staggering array of criminal conduct" by people working in and around the foreign exchange business.

"Today's charges run the gamut of fraud," said Comey. "With more than 1,000 victims, from small investors to large banks, the losses are in the millions."

The charges included perjury, money-laundering, extortion, bankruptcy fraud, narcotics trafficking and even firearms offenses.

"When the FBI placed an undercover in the forex world posing as a bad guy ... he had more criminal schemes thrown at him than you could imagine," Comey said.

The sweep netted traders at major financial institutions as well as so-called "boiler-room" dealers who preyed on small investors.

According to the criminal complaint, some of the world's biggest banks were scammed by corrupt players inhabiting every level of the largely unregulated forex inter-bank market, where financial institutions and other large entities arrange their own swaps in foreign currencies.

Traders took pay-offs, often in cash-stuffed envelopes, to steer their own banks into loss-making currency trades which were set up by corrupt brokers elsewhere.

Among those banks affected were JP Morgan Chase; Societe Generale of France; UBS Warburg Dillon Reade, an arm of Swiss-based UBS; Dresdner Kleinwort Benson, a division of Germany's Dresdner Bank AG; and Israel's Discount Bank.

Over a six-month period, the FBI operation discovered 123 rigged trades totalling in excess of 650,000 dollars.

"This had been going on far and wide for 20 years so the imagination runs wild as to the total loss," Comey said.

It was the latest development to rock the financial sector since the accounting scandals that began with Enron Corp. and WorldCom, followed by crackdowns on corporate malfeasance and the more recent probe into shady dealings in the mutual fund industry.

Comey said the FBI sting should serve as a warning to small investors who might be conned into investing funds in pseudo financial firms with fancy names that promise safe returns from forex operations.

"They're not fancy, just fraudulent," Comey said.

"There may be legitimate commerce, but there are a lot of sharks in that water. If you are going to go swimming, we in law enforcement suggest a period of careful reflection from the beach before you jump in."

Along with the criminal charges announced Wednesday, the Commodity Futures Trading Commission announced it filed six separate civil complaints charging a total of 31 individuals and entities with fraud in the sale and solicitation of illegal foreign currency futures contracts.

The regulatory agency said federal agents had infiltrated a forex operation in the World Financial Center and captured "hundreds of hours" of video and audio recordings of defendants allegedly scheming to deceive unsuspecting customers and steal millions of dollars.

Related civil charges were also brought by the Securities and Exchange Commission, including one against an individual, Adam Swickle, accused of raising 700,000 dollars from 21 investors by selling worthless stock in his purported trading firm, United Currency Group.

"Swickle misrepresented his background, the identity of other officers and directors of United Currency Group and the fact that he used a substantial part of the money for his personal benefit," said SEC associate regional director Mark Schonfeld.

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