$6 trillion in forged U.S. bonds seized

POTENZA, Italy -- Italian police said on Friday they had seized about $6 trillion worth of fake U.S. Treasury bonds and other securities in Switzerland, and arrested eight Italians accused of international fraud and other financial crimes.

The operation, coordinated by prosecutors from the southern Italian city of Potenza, was carried out by Italian, Swiss and U.S. authorities after a yearlong investigation, an Italian police source said.

It began as an investigation into organized crime loan-sharking, but gradually expanded as prosecutors used telephone and computer intercepts to unearth evidence of illegal activity surrounding Treasury bonds.

The fake securities, worth more than a third of U.S. national debt, were seized last month from a Swiss trust company where they were held in three large trunks.

Prosecutors said the forgers had hoped to use the fake bonds as collateral to secure loans.

The U.S. Embassy in Rome thanked the Italian authorities and said the forgeries were "an attempt to defraud several Swiss banks." It said U.S. experts had helped to identify the bonds as fakes.

Police videos showed images of the trunks, with "Federal Reserve System, Treaty of Versailles" stamped on the side in large, golden letters.

Bond certificates marked "Chicago, Illinois, Federal Reserve Bank" and other securities, some for $1 billion, were also shown.

U.S. bond traders took a lighthearted view of the news, which would not move markets. "If there's that much less supply now, Treasuries should be rallying," joked Kevin Flanagan, fixed-income strategist at Morgan Stanley Smith Barney.

The eight men arrested are accused of counterfeiting bonds, credit card forgery, and loan-sharking in the Italian regions of Lombardy, Piedmont, Lazio and Basilicata, police said.