U.S. prosecutors charged foreign exchange traders at UBS, J.P. Morgan & Co. and 16 other firms with cheating thousands of investors through sham or rigged currency trades in the $1.2-trillion-a-day currency market.
Some bank traders, including those from Dresdner Kleinwort Benson and Israel Discount Bank, also were charged with accepting kickbacks on phony trades. Altogether, 47 people were arrested and charged after an 18-month undercover probe dubbed Operation Wooden Nickel, U.S. Atty. James B. Comey said.
"Investors lost millions of dollars when they were conned into trading through these boiler rooms," Comey said, referring to telephone-sales operations that allegedly sold nonexistent currency contracts. "The companies were called Madison Deane, Montgomery Sterling or other fancy sounding operations. It wasn't fancy. Just fraud."
The probe is the government's "most substantial infiltration" into corruption in the unregulated foreign exchange market, where buying and selling sets the value of the world's most actively traded currencies, Comey said. He estimated that duped investors lost tens of millions of dollars.
Over a six-month period during the undercover investigation, the participants did 123 trades with illegal profits of $650,000, Comey said. Such practices have been common in the industry for 20 years, he said. The banks involved were not charged and blamed the fraud on rogue traders.
Traders at the banks were introduced by "facilitators" to both currency brokers and customers who were amenable to the fraud, Comey said.
"We've only seen the tip of the iceberg," said Eugene Ludwig, who was comptroller of the currency from April 1993 to April 1998. Among those charged was Stephen E. Moore, former chief executive of ITradecurrency USA, a Forex brokerage firm that served as a beneficiary, of the rigged Forex trading.
Also charged Wednesday were three practicing attorneys, Comey said. Forty of the defendants were taken into custody Tuesday and Wednesday. Two defendants already were in custody and four others are at large.
In a parallel action, the Commodity Futures Trading Commission announced that it filed six separate federal injunctive actions, charging a total of 31 individuals and entities with engaging in the fraud in the sale and solicitation of illegal foreign currency futures contracts.
A federal judge in New York entered restraining orders, freezing the defendants' assets, the agency said. Among those targeted were Madison Deane & Associates, First Lexington Group and ITradecurrency.