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Federal investigators say they discovered massive food stamp fraud during recent raids on merchants suspected of exchanging the coupons for cash, drugs, guns and other contraband.

The Secret Service said this week that more than 150 store owners and employees were arrested in a summerlong sweep of grocers and other merchants in several cities nationwide.Known as "Operation Stamp Out," the agency's investigation targeted merchants who buy food stamps from recipients at half their face value and then redeem them for the full price from the federal government.

Some 27 million Americans receive $24 billion in annual food stamp benefits. The Secret Service estimates that $2 billion of that is illegally laundered.

According to the Secret Service, investigators discovered that food stamp recipients who sell their benefits for cash often use the money to buy illegal drugs, frequently in open-air drug markets "outside the corrupt stores or even at the grocery store check-out counter."

"In several instances during this roundup, undercover agents purchased drugs directly from the merchants, using food stamps instead of cash as their currency," the agency said in a press release.

Rep. Ron Wyden, D-Ore., who chairs a House subcommittee on regulation, said Friday the investigation underscores the need to beef up food-stamp enforcement at the Agriculture Department.

"Hopefully, with the Secret Service digging out this massive amount of fraud, the message will get to the Department of Agriculture and this administration that they had better start taking this seriously," Wyden said.

But Phil Shanholtzer, a spokesman for USDA's Food and Nutrition Service, disputed the Secret Service estimate of the cost of trafficking, saying that Agriculture officials do not have a reliable figure on fraud.

"We certainly don't stand by the $2 billion number. But we applaud the Secret Service for ferreting out people who are defrauding the program," he said.

Operation Stamp Out was launched June 16, in Akron, Ohio. A sweep of 42 area stores resulted in the arrest of 50 merchants. Many of the stores were redeeming food stamps worth twice as much as their inventory.

In July, agents in New Mexico targeted vendors at a flea market in Las Cruces, after local citizens complained that food stamps were being accepted by merchants as payment for any item. Officials arrested nine vendors after they accepted food stamps from undercover officers.

The agency said it also thwarted a conspiracy in Omaha, where agents identified 21 individuals who had allegedly conspired to illegally obtain food stamps and then sell them for illicit purposes.

The scheme involved an employee of the Nebraska Department of Social Services, who used his access to case files to obtain information that allowed others to fraudulently apply for food stamps.