Investment bankers at two of Wall Street's leading firms have been arrested for allegedly participating in a $6.7 million international shares trading scam that involved stolen magazines, a stripper and a retired Croatian underwear seamstress.

Eugene Plotkin, a bond analyst at Goldman Sachs, was co-leader of an insider trading ring that made purchases using advance copies of BusinessWeek, the United States Attorney said. Stanislav Shpigelman, a junior investment banker at Merrill Lynch's mergers and acquisitions division, is also alleged to have supplied information on future deals.

The ring also tried to recruit exotic dancers in New York who could coax their Wall Street clients for information, according to the US regulator.

The FBI arrested both men yesterday and their bail was set at $3 million each. A third man, Juan Renteria, a 20-year-old forklift driver at a plant that printed BusinessWeek, was arrested in Milwaukee for allegedly supplying advance copies of the magazine.

"These defendants developed their sources of information in the hopes of running that insider trading business as a money-making machine, and for a little while it worked, netting millions of dollars," said Michael Garcia, the US Attorney for the Southern District of New York.

The ring traded on upcoming mergers, including Procter & Gamble acquisition of Gillette in January 2005 and Adidas’ acquisition of Reebok in August, according to court records.

Mr Plotkin, 26, faces a maximum penalty of 70 years in prison. Mr Shpigelman, 23, could get up to 55 years and Mr Renteria may be jailed for 15 years.

The arrests are the latest twist in an insider trading case that began in August last year, when regulators grew suspicious of trading profits racked up by Sonja Anticevic, a 63-year-old retired seamstress from Croatia. The account belonging to her was frozen and her 29-year-old nephew, David Pajcin, was charged with insider trading.

Mr Pajcin is alleged to be the co-leader of the gang along with Mr Plotkin. According to the US regulator, Mr Plotkin and Mr Pajcin persuaded Mr Shpigelman to provide tips on upcoming mergers in return for a share of the trading profits.

Working with co-conspirators, they are also alleged to have helped cronies get jobs at investment banks to gain access to more information.

The criminal complaint alleged that Mr Plotkin and Mr Pajcin created a joint fund to hold their illegal gains, and began tipping family and friends on the understanding that those receiving tips would kick back a share of winnings to the pair.

Monika Vujovic, a stripper in New York, allowed Mr Pajcin to use an account in her name to make stock trades in return for about half the profits, authorities said.

"We've never seen before a case involving so many different attempts to obtain information illegally," said Mark Schonfeld, regional director of the Securities and Exchange Commission, which has brought civil charges against 13 people.

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