Jul.03, 2010, 8:41 a.m., Source: Associated Press

Three executives at a stuffed toy manufacturer were arrested Friday on suspicion of laundering millions of dollars for Mexican and Colombian drug traffickers, authorities said.

The arrests followed a two-year, multi-agency probe into the Angel Toy Corp., located in a downtown warehouse.

"It's no small irony that a multimillion-dollar company which promoted itself as retailer of cuddly stuffed animals was allegedly acting as a financial linchpin for drug trafficking operatives," said John Morton, director for U.S. Immigration and Customs Enforcement.

Two co-owners of the business, Meichun Cheng Huang, 57, and Ling Yu, 52, were arrested, along with chief executive officer Xiaoxin Ju, 48.

According to a federal indictment, they were involved in a complex money-laundering scheme that saw representatives from drug trafficking groups drop cash at Angel Toy's downtown headquarters or deposit money into company accounts.

The deposits were always for less than $10,000 to avoid raising suspicion, authorities said. The money was then wired to China to purchase teddy bears and other stuffed animals. These toys were allegedly sent on to Columbia, where a businessman sold them and gave the proceeds, in pesos, to the drug traffickers.

The company's website depicts various models of cuddly toys available for purchase, including a 9-inch pillow shaped like a pig.

"You have these dangerous foreign drug dealers using cuddly stuffed animals as a way to cover their nefarious operation," California Attorney General Jerry Brown said. "They must have been good at teddy bear sales."

Authorities said Colombian authorities arrested the alleged reseller, Jose Cuevas Otalora. He will undergo extradition proceedings to the U.S.

The defendants are charged with conspiracy to structure case transactions, and Angel Toy is charged with conspiracy to launder money. Yu also faces a charge of conspiring to smuggle cash out of the U.S., and Huang is charged with witness tampering for allegedly pressuring an Angel Toy worker not to talk to a grand jury in the case.

"My clients maintain their innocence and look forward to being vindicated in court," said attorney David A. Katz, who represents Huang and Yu.

A woman who answered the phone at Angel Toy declined to comment.