A German financial manager based in Miami was arrested on money-laundering charges Wednesday as part of a sweeping criminal investigation into an international hedge fund that has cost major banks about $400 million in losses, according to sources familiar with the probe.

Stefan R. Seuss, arrested at his Coconut Grove home by FBI agents, appeared in federal court in Miami and agreed to be transferred to Philadelphia, where a grand jury has indicted him in the money-laundering conspiracy case.

Seuss has been charged in connection with a global criminal investigation into the German hedge fund, K1 Group, headed by Helmut Kiener, according to sources familiar with the case. Kiener's home in Germany was raided by authorities Wednesday.

Kiener's hedge fund is suspected of engaging in ``circular transactions'' with a network of investment firms in the United States, United Kingdom and other countries to create the ``illusion'' that it had ample money to back up loans from the banks, according to Bloomberg News.

Among the reported banks saddled with huge losses: Barclays, JPMorgan Chase & Co. and BNP Paribas.

Seuss specialized in transferring money from the United States to offshore companies in the British Virgin Islands and elsewhere -- and then to foreign bank accounts, according to an indictment. Seuss was associated with various Swiss financial institutions, including Wegelin Bank, the indictment said.

His investors' funds were placed in life insurance annuities offered by Seuss' associate, Thomas R. Meyer, a U.S. citizen and German national who lived in Omaha, Neb.

Meyer was also charged in the indictment.

Both men agreed to transfer $500,000 in ``illegal'' profits from pirated CD, DVD and software sales for a federal undercover agent posing as a New York businessman, the indictment said.

During the previous two years, the undercover agent recorded meetings with the men at a hotel in Philadelphia and an office at Florida's Ponte Vedra Beach where they discussed the initial ``test'' transaction of $500,000 -- and later up to $5 million.