FBI agents have arrested about 48 Wall Street foreign exchange professionals in a sting targeting several top firms thought to have defrauded small retail investors of millions of dollars.
FBI officers swarmed on 2 World Financial Centre in New York last night and led out men in business suits, taking them away in vans and cars. Some of the men covered their heads with overcoats while others bowed their heads to hide from television cameras and photographers.
"It's currency fraud, securities fraud," said one agent at the scene of the arrests. "It's been a long investigation. The arrests have been ongoing today."
A Madison Deane and Associates employee, who asked not to be named, said the FBI arrested seven people at his firm, which offers currency broker services.
The worker said the FBI told Madison Deane employees that $4 million had been stolen from clients and that money had been taken out of people's Individual Retirement Accounts.
A Reuters reporter on the 36th floor of 2 World Financial Centre, where Madison Deane has offices, witnessed FBI agents removing about 10 boxes from one firm's office.
Among others arrested in the massive sting were three brokers at the inter-dealer brokerage ICAP, which operates at a different location, according to another source.
NBC television reported the defendants told investors they were buying multimillion-dollar foreign exchange trades when it is not possible for those types of investors to participate in such deals.
The unexpected operation came at a time when America's financial markets have been hit by scandal after scandal. Corporate wrongdoing by companies like Enron, which went bankrupt in 2001, sparked a massive accounting scandal and led to the demise of one of the world's largest accounting firms, Arthur Andersen. The scandal rocked investor confidence and unearthed irregularities at other companies.
Since then Wall Street equity research companies have been targeted by prosecutors for inflating stocks during the Internet boom of the late 1990s. More recently the mutual fund industry has been investigated on charges of improper trading.
Until yesterday the $1.2-trillion-a-day foreign exchange market, whose primary clients include top companies, millionaires and banks, has remained relatively untainted by scandal.
The names of other companies involved remained unclear, but sources told Reuters that about four companies were targeted. Sources said none of the companies targeted are household names outside of the securities industry but are well known and regarded in the Wall Street community.