Exchange traders arrested in NYC

US financial firms have been rocked by a series of scandals

US officials have arrested 48 foreign exchange traders on suspicion of fraud in New York City's financial district.

FBI officials raided a building housing several firms in Manhattan, taking away the workers in handcuffs.

Sources said the men would be charged with swindling investors out of cash by making false foreign exchange trades.

The arrests come shortly after revelations of irregularities in the US mutual funds industry, which handles the savings of millions of Americans.

The foreign exchange market, whose trading worldwide amounts to more than a trillion dollars a day, remains largely unregulated in comparison with shares and other securities.

Manipulation

Those arrested were detained after sealed court papers were filed in the US District Court in Manhattan, the Associated Press news agency reported.

FBI sources said the raid followed a long-running probe into allegations of currency manipulation and securities fraud.

Officers also searched the premises for any evidence of illegal activity.

Charges are expected to be announced on Wednesday.

UK interdealer broker ICAP said three of its US brokers based in New Jersey had been arrested but said there was no suggestion its businesses were subject to an FBI investigation.

And it was reported that FBI agents had arrested seven employees of foreign currency broker Madison Deane & Associates in Manhattan. Company officials could not be reached for comment.

Scandals

US authorities have been trying to salvage the image of financial institutions following well-publicised scandals at companies such as Enron and WorldCom.

Several big New York banks have already been fined for giving misleading advice to their clients about which shares to buy.

Earlier this week, investment bank Morgan Stanley agreed to pay regulators $50m after being accused of giving biased investment advice to its clients in return for substantial commissions from financial services companies.

And in recent months US markets watchdog the Securities & Exchange Commission unveiled new safeguards aimed at eliminating abuses in the mutual funds industry after revelations of dubious trading practises.