FBI agents on Tuesday 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 US dollars.
FBI officers swarmed on 2 World Financial Center late on Tuesday afternoon 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 Inc employee, who asked not to be named, said the FBI arrested seven people at his firm, which offers currency broker services.
"We were just sitting there working, and they [FBI] just came in and stormed the place," the man said, adding that the FBI agents took out three partners, three vice presidents and one broker all in handcuffs at about 5:30pm.
"They had guns. They came in with vests and said `Nobody move,'" the employee told reporters.
The worker said the FBI told Madison Deane employees that US$4 million had been stolen from clients and that money had been taken out of people's Individual Retirement Accounts.
At about 9:30pm, a reporter saw a group of FBI agents carrying about 20 boxes labeled "Madison Deane" from 2 World Financial Center, where the firm has offices on the 36th floor.
Madison Deane officials could not be reached for comment.
FBI agents began arresting brokers at the swank office building in downtown Manhattan shortly after 3pm and for about two hours led out handcuffed people dressed in business attire. FBI sources said the Wall Street traders will be charged with money laundering and fraud for swindling retail investors out of an undisclosed amount of cash over the past year.
Among other 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 scammed retail investors into thinking they were buying multimillion-dollar foreign exchange trades when it is not possible for those types of investors to participate in such deals.
A spokesman for the FBI declined comment but said the agency will hold a briefing yesterday.
Spokespeople for the US Attorney's office and the Treasury Department declined comment.
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 Corp, 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 Tuesday the US$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 reporters 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.
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