AP, WASHINGTON  -- Federal regulators have formed a task force to investigate and prosecute fraud in the retail market for trading foreign currencies outside of commodity exchanges, a field they say is riddled with unscrupulous operators.

The Commodity Futures Trading Commission, which regulates U.S. futures markets, said it was establishing the task force within its enforcement division to focus on fraud in the off-exchange retail foreign currency market, as well as to work with other federal and state regulators and criminal authorities.

Creation of the Forex Enforcement Task Force follows the June enactment of legislation that strengthened the CFTC's jurisdiction over that market, the agency said in a news release.

Michael Dunn, head of a separate agency task force that deals with foreign-exchange education, said the announcement ''sends a clear signal that the CFTC is on the beat, and that our continued and increased cooperation with law enforcement authorities will help put these (foreign exchange) dealers where they belong -- in jail.''

The CFTC and state securities regulators have warned the public to be cautious before trading foreign currencies -- especially outside of major exchanges such as the Chicago Mercantile Exchange -- saying it is at best very risky and at worst, fraudulent.

When an investor buys a foreign exchange contract, he or she buys the right to purchase an amount of foreign currency at a fixed price in dollars. Investors hope to profit from ups and downs in currency markets. But sharp swings in prices also can cause large losses, especially when an investor borrows money to make an investment and can wind up owing more than their initial investment was worth.

Regulators say fraudulent schemes often come in the form of unsolicited phone calls and efforts to convince an investor to quickly transfer cash.

The CFTC says it has brought nearly 100 enforcement actions since 2000 against companies and individuals accused of selling illegal foreign-exchange futures and options contracts.

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