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BFCSA: United States Forex Fraud 'staggering': attorney. 47 Traders indicted

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So much for regulators and regulation!

US forex fraud 'staggering': attorney

By Kenneth Gilpin
New York
November 21, 2003

 
 

Forty-seven currency traders were indicted on Wednesday on charges including conspiracy, wire fraud, money laundering and securities fraud. Prosecutors alleged a wide range of crimes at nearly every level of foreign-exchange trading.  The charges involved staff at low-level "boiler-room" operations with fancy-sounding names and at some of the world's largest financial institutions. 

They followed an 18-month investigation by undercover Federal Bureau of Investigation agents codenamed "Operation Wooden Nickel".  "There is a staggering array of criminal conduct," said James Comey, US attorney for the southern district of New York. "Today's charges run the gamut of fraud. With more than 1000 victims, from small investors to large banks, the losses are in the millions."

FBI agents arrested dozens of people on Tuesday and seized boxes of records from small trading firms such as Madison Deane as well as giants such as JP Morgan Chase and UBS.   In eight separate complaints, the Justice Department has contended that two basic crimes were committed.

First, many of the small firms solicited money from investors with the promise that they could earn them consistent returns by trading in foreign currencies. In fact, these firms were really stealing the money, Mr Comey told a news conference. "It wasn't fancy," he said. "Just fraud."

The second charge contended that banks such as JP Morgan Chase were "scammed" by their own employees who engineered trades in which their firms and their customers lost money while the small trading houses made money. Some of the profits were then kicked back to the bank employees, according to the complaints.

Mr Comey said the FBI discovered more than 100 such trades over a six-month period that cost the banks about $US650,000. But the actual number was probably much higher.   The agents captured "hundreds of hours" of video and audio recordings of defendants that showed sales representatives scheming to deceive unsuspecting customers and steal millions of dollars.  "This had been going on for 20 years," he said.

In addition to employees at JP Morgan and UBS, those charged included workers at Societe Generale, Dresdner Kleinwort Benson and Israel Discount Bank, and three practising lawyers.   In addition, the Securities and Exchange Commission filed a complaint against the United Currency Group and its chief executive, Adam Swickle, accusing them of conducting a fraudulent offering of the company's securities from May 2001 to December 2002.

The complaint stemmed from the FBI's investigation, the SEC said.   And the Commodity Futures Trading Commission said it filed six separate actions against 31 individuals and entities, including Madison Deane, charging them with engaging in fraud, and in the sale and solicitation of what it claimed were illegal foreign currency futures contracts.

The CFTC, which has been investigating illicit activity in the currency futures market for nearly three years, said its actions stemmed from its participation in the FBI investigation.   In announcing the charges, the CFTC said that as part of the investigation, federal agents infiltrated a foreign-exchange boiler room at the World Financial Centre that was operated by corrupt sellers of illegal foreign-exchange futures contracts.

The agents captured "hundreds of hours" of video and audio recordings of defendants that showed sales representatives scheming to deceive unsuspecting customers and steal millions of dollars, the CFTC said in a statement.  Mr Swickle, who was named in the SEC suit, is the founder of the United Currency Group. The SEC asserted that he employed sales representatives to trade foreign currency for its clients. His firm raised $US774,000 through its fraudulent offering, the SEC contended.

Of the 47 traders charged with fraud by the US attorney, 40 were taken into custody by the FBI on Tuesday and Wednesday, the Justice Department said. Two defendants had previously been arrested.  Four were being sought and the status of one was unclear.   The currency traders at large banks who were named in the indictments were Craig Bohrman of Dresdner Kleinwort Benson, Lee Kassler of Israel Discount Bank, Patrick Marzo of Societe Generale, Anthony Viggiano of JP Morgan Chase, and Eduard Wehrli of UBS.

The complaint charged that at least from May 2003 to the present, these individuals, and others at interbank brokers who were also indicted, participated in a fraudulent scheme they referred to as the "game", or "points for cash".  The traders received about $US270,000 in kickbacks from the interbank brokers for the rigged trades, according to the complaint.

The foreign-exchange market, the conduit for transactions that fuel the global trading system, is largely unregulated.   Daily volume in the market is around $US1 trillion ($A1.38 trillion) a day, Mr Comey said.

- New York Time

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