Sting in U.S. nabs 47 for currency fraud

…with more than 1,000 victims from small investors to large banks, the losses are in the millions…were conned into trading through these boiler rooms," Comey said. "The companies were called Madison Deane, Montgomery Sterling or other fancy-sounding operations. It wasn't fancy. Just fraud.''

The Toronto Star
November 20, 2003

Sting in U.S. nabs 47 for currency fraud
Operation Wooden Nickel took 18 months, Investors lost millions of dollars, government says.
Daniel Bases

NEW YORK—The U.S. justice department said yesterday it has charged 47 people, including employees of J.P. Morgan Chase & Co. and UBS AG, with cheating thousands of investors through sham or rigged trades in the $1.2 trillion (U.S.)-a-day currency market.

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

Defendants in the sting, called Operation Wooden Nickel, include employees of Groupe Société Générale, Dresdner Kleinwort Benson (the investment bank of Dresdner Bank AG), Israel Discount Bank Ltd., a former member of the Federal Reserve's private-sector forex committee, three lawyers and numerous officers of publicly traded companies, the justice department said. The Fed forex committee is an ad hoc group of financial industry professionals that sets "best practice" policies, but is not formally connected to the Fed.

The charges follow an 18-month undercover investigation of boiler room sales operations and currency futures trading, Comey said. Twenty of the defendants were charged with conspiring with brokers and customers to rig trades in favour of the customer, who would then kick back some of the profit to the broker and the bank employee.

"Investors lost millions of dollars when they were conned into trading through these boiler rooms," Comey said. "The companies were called Madison Deane, Montgomery Sterling or other fancy-sounding operations. It wasn't fancy. Just fraud.''

Over a six-month period during the investigation, 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.

Individuals at the banks were charged, but the banks themselves were not accused and blamed the fraud on rogue traders. Arrests were made in New York City, Jersey City, N.J., and Stamford, Conn.

In a parallel action, the U.S. Commodity Futures Trading Commission filed six separate federal injunctive actions, charging 31 individuals and entities with fraud in the sale and solicitation of illegal foreign currency futures contracts.

from the star's wire services


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