Three Palestinian-American men who were found with nearly 1,000 cell phones were charged Wednesday with federal fraud conspiracy and money laundering after a county prosecutor backed off from terrorism charges filed earlier.

Maruan Muhareb, 18; Adham Othman, 21; and Louai Othman, 23, all of the Dallas area, were charged in Bay City with conspiracy to defraud consumers and telephone providers by trafficking in counterfeit goods. They also were charged with money laundering on suspicion that they used proceeds from the counterfeit cell phone transactions to buy more phones.

Magistrate Judge Charles Binder ordered the men held at least until a detention hearing Friday. They were arrested last Friday after buying dozens of cell phones at a Wal-Mart store in nearby Tuscola County.

The three in Michigan had been charged there with collecting or providing materials for terrorist acts and surveillance of a vulnerable target for terrorist purposes.

Prosecutor Mark E. Reene asked a judge Wednesday to dismiss those charges.

Nabih Ayad, an attorney for the three men, called the charges “outrageous” and accused state and federal officials of “scratching each other’s backs” by shifting jurisdictions.

“This is a clear indication of racial profiling: Picking someone up and holding them for days and trying to find something to charge them with. It’s supposed to be the other way around,” he said.

The federal complaint contains no mention of terrorism. It alleges that the three men defrauded consumers, TracFone Wireless Inc. and Nokia Corp.

Florida-based TracFone sells prepaid cell phones with a limited number of minutes at subsidized prices. It makes money when buyers purchase additional minutes.

The government alleges the men are part of a scheme to buy up phones that Nokia makes for TracFone and then remove TracFone’s proprietary software, enabling use of the handsets with any cellular provider.

When the phones are altered, they are no longer genuine Nokia products.

People involved in the trade of so-called “unlocked” cell phones maintain that the practice is legal.

All the information in the federal complaint came from the defendants’ statements to the FBI in interviews before they were charged in Tuscola County, Ayad said.

Supporters of the Texas men say they were targeted because of their ethnicity. They say that the three were hoping to resell phones for a profit and that their purchases had nothing to do with terrorism.

Photos the men took of the 5-mile-long Mackinac Bridge, which led to the surveillance charge, were tourist snapshots, advocates contend.

The FBI said this week there was no imminent threat to the bridge and no information linking the men to known terrorist groups. The head of the Michigan State Police said there was no indication the men were plotting any kind of attack.

Reene said Wednesday that he was “deeply troubled” by the FBI’s statement. He called it “a very peculiar development” and complained that he found about it through the media.

The conspiracy charge is punishable by five years in prison. The men could face 20 years in prison if convicted of money laundering.

In the other case, two men from Michigan were released from jail Tuesday — the same day a prosecutor in Ohio dropped similar charges against them. They were arrested with a dozen cell phones, passenger lists and $11,000 in cash during a traffic violation in Marietta, Ohio, on Aug. 8.

Authorities said they found airplane passenger lists and information on airport security checkpoints along with the cash and cell phones in the car.

The men initially were charged with supporting terrorism after buying large numbers of cell phones. Those charges were dropped, but the men still face misdemeanor counts stemming from allegations that they lied to deputies.

Copyright © 2006 The Associated Press