U.S. prosecutors have filed fraud charges against dozens of foreign currency traders accused of cheating investors out of millions of dollars. The currency traders were arrested in overnight raids in six different states.

The arrests follow an 18-month investigation, as part of a crackdown on the largely unregulated inter-bank foreign exchange market.

Forty-seven traders at more than a dozen firms are charged with conspiracy, wire fraud, money laundering and securities fraud.

United States Attorney James Comey said at a New York news conference that the probe, dubbed "Operation Wooden Nickel," revealed both individual investors and major banks were victims of the far-reaching scams.

"The lesson of this case in exposure of these schemes is this, there may be legitimate commerce but there are a lot of sharks in that water. If you're going to go swimming, we in law enforcement suggest a period of careful reflection from the beach before you jump in," he said.

Mr. Comey says small investors were told their money would be carefully invested in low-risk currency trades by brokerage firms that did not really exist. Instead, traders pocketed the money. Traders are also being accused of defrauding large banks by taking payoffs for losses set up by corrupt brokers. Swiss Giant UBS and JP Morgan Chase were among those affected by the scams, by some of their own employees.

This latest scandal comes as no surprise to Howard Wachtel, an economist and author of a new book on the dangers of a self-regulating Wall Street.

"It's a question of when the shoe was going to fall," he explained. "Whenever you have these long, euphoric extended bubbles, there's always a retreat historically from the regulatory process. People forget what they're supposed to do both in the regulatory community and the internal ethical compass gets obliterated and in that process, when the bubble bursts is when you begin to see the outcomes. And this is an historical occurrence about every 25 years starting with the beginning of Wall Street in 1790."

As much as $1 trillion in foreign currency is traded daily, with banks handling most of the trades. The currency exchange market has no central office and operates 24 hours a day through a network of traders connected by computer and telephone.