US prosecutors have charged 47 currency traders with a range of criminal offences, including fraud.
US financial firms have been rocked by a series of scandals
The traders were arrested on Tuesday night in a high-profile FBI swoop on Wall Street dealing rooms.
They include employees of big name banks including JP Morgan Chase, UBS , and Dresdner Kleinwort Wasserstein.
The US Justice Department said it had uncovered fraud "at virtually every level of the foreign currency markets".
"Today's charges run the gamut of fraud," said US attorney James Comey.
"With more than 1,000 victims, from small investors to large banks, the losses are in the millions."
Those arrested include traders at Wall Street banks who allegedly accepted kickbacks in return for setting up transactions in which their employers would lose money.
Others are accused of taking part in "boiler room" operations, where high-pressure sales tactics were used to convince members of the public to put money into worthless financial schemes.
Prosecutors said they had evidence that some of the scams had been going on for 20 years.
The foreign exchange market, where than a trillion dollars change hands every day, is lightly regulated in comparison with the stock market.
It has no central exchange, consisting simply of a 24-hour network of traders spread across the US, Europe, and Asia.
FBI sources said the arrests followed a long-running probe into allegations of currency manipulation and securities fraud.
UK interdealer broker ICAP confirmed that three of its US brokers based in New Jersey had been arrested, but said there was no suggestion that the company itself was under investigation.
Those detained also included an employee of Tullett Libery, a subsidiary of London-based broker Collins Stewart.
Collins Stewart said the charges related solely to the employee.
UBS also distanced itself from the investigation.
"There is no suggestion that any of UBS' businesses are being investigated in connection with this matter," a spokeswoman said.
But the affair is likely to deal a damaging blow to Wall Street's public image, which is still recovering from the Enron and WorldCom scandals last year.
It closely follows revelations of serious irregularities in the US mutual funds industry, which handles the savings of millions of ordinary Americans.
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.
On Tuesday, 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.