Two investment consultants were arrested yesterday by police investigating an international fraud involving potential losses of ?250 million.

Another man is being hunted in connection with the allegedly bogus high-yield fund in which 600 investors around the world lost money.

City of London fraud squad detectives detained John Anderson, 43, and Kenneth Peacock, 40, in dawn raids on addresses in London and Surrey. They have been questioned on suspicion of conspiracy to defraud, money laundering and fraud by misrepresentation. A third suspect, who has not been named, is believed to be overseas.

The City police, the country?s lead force for economic crime investigation, has expanded its antifraud operations and cooperation with financial regulators has been stepped up.

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The FSA said that none of the individuals under investigation were licensed to run collective investment schemes, which meant that no one who has lost money is entitled to government compensation. It has issued proceedings against three people linked to consultancies for allegedly taking unlawful deposits and running an unauthorised collective investment scheme.

One source said: ?We?re looking at what appears to be a high-yield investment fraud which had elements of a Ponzi scheme ? robbing Peter to pay Paul. Investors were being offered returns of six per cent and upwards which could not be delivered and the whole thing started to unravel. We?re working on estimated losses of between ?50 million and ?250 million.?

The inquiry is focusing on the activities of three firms: Business Consulting International (BCI), John Anderson Consulting and Kenneth Peacock Consulting. Authorities in London are trying to impose a worldwide freeze on assets connected with the firms and individuals associated with them.

City police appealed last night for anyone who had dealings with the three consultancies to contact the investigation team.

Detective Inspector David Manley said: ?We are working in partnership with the FSA to tackle this complex investment fraud that involves hundreds of victims and losses suspected to run into tens of millions of pounds. It is vitally important for people who have been involved with, or suspect they could be a victim of BCI, John Anderson Consulting and Kenneth Peacock Consulting to contact the City of London Police as soon as possible.?

Jonathan Phelan, the head of enforcement at the FSA, said: ?Anyone who has been in contact with these companies should get in touch with the police. People should also be careful to ensure that any firm they deal with is authorised.?