Up to 400 retail investors in the UK are alleged to have been conned out of more than $110 million (£68 million) in the giant “boiler-room” investment fraud that saw a host of arrests in New York, it emerged today.

The FBI yesterday arrested the founders and senior directors of AIM-listed Sky Capital Holdings on charges that they ran a $140 million investment fraud for eight years.

Federal investigators swooped on the six men after a three-year probe into allegations of investment fraud and share price manipulation on the London Stock Exchange.

Revealing for the first time the extent of the British nature of the alleged conspiracy, FBI sources in New York told the Evening Standard that between 300 and 400 of the alleged victims were “ordinary retail investors from the UK” whose losses amounted to some 80% of the total alleged fraud.

Investigators from the Financial Services Authority and “over a dozen local constabularies” in Britain were involved in the three-year-long probe and would continue to investigate the case, the sources said.

The Serious Fraud Office assisted in a minor capacity by conducting interviews with some of the victims.

The allegedly fraudulent stockbroking firm was well connected in the UK. Former Tory MP for Fulham Matthew Carrington served as a director of Sky Capital's UK arm until 2004. There is no suggestion that he was involved in any wrongdoing.

Federal prosecutors allege that from 1998 to 2006 Sky Group chief executive Ross Mandell and five others participated in a scheme to defraud investors via two brokerages, The Thornwater Company and the Sky Capital group of companies. Shares of Sky Capital Holdings and Sky Capital Enterprises, subsidiaries of Sky Capital Group, were until late 2006 traded on the Alternative Investment Market of the London Stock Exchange.

According to the charges, ordinary investors were cold-called by aggressive “boiler-room” brokers who promised stellar returns from investments in start-up technology companies, IPOs and venture-capital funds.

But, prosecutors claim, the money raised was merely used to pay off other investors and to pay bribes and bonuses to the allegedly crooked brokers.

The indictment also claims the six alleged fraudsters manipulated the share prices of Sky Capital Enterprises and Sky Capital Holdings on the LSE by engaging in a so-called “no-net-sales” policy, an illegal tactic that involves preventing the sale of shares in your company until a buy order can be generated, thereby stopping the share price from falling.

The nature of the share price manipulation suggests others close to AIM may have had a hand in the fraud. A source close to the investigation added: “there is a prospect that further people in the UK will be charged by UK authorities further down the road.”

The Securities and Exchange Commission, the US market regulator, filed civil charges in the case last night.

The six men surrendered to authorities in New York and were last night charged in Federal Court with fraud and conspiracy. If convicted they each face up to 25 years in jail and millions of dollars in fines. Mandell pleaded not guilty and was released on $5 million bail.