Undercover federal drug agents started using the first of some $40,000 worth of food stamps to buy heroin on Baltimore streets last December. Then they waited to see who the drug dealers would turn out to be and how they would turn their food stamps into cash.

The marked food stamps eventually turned up at the Federal Reserve bank in Baltimore. By checking endorsements on the back of the stamps, the investigators traced the coupons to where they were exchanged for cash: two neighborhood grocery stores owned by the alleged drug dealers.

The dealers were among 15 persons, including two juveniles, arrested yesterday in a series of raids in Baltimore city and suburban Howard County in what police are calling the nation's biggest crackdown on the use of food stamps to purchase illegal heroin.

The agents found $111,000 in cash in the Ellicott City apartment of a man believed to be the organizer of the multimillion-dollar operation. They also recovered two cars and seized five weapons during the raids, officials said at a press conference here today.

The arrests were the result of an eight-month operation called "Operation Stamp Out." Most of the undercover agents' purchases were for $2,000 and $3,000 worth of heroin, which sells for $10,000 an ounce. The biggest purchase was for 1 ounce.

According to federal drug officials, the drug dealers who received the stamps converted them to cash at one of the two grocery stores. Legally, stamps can be exchanged only for food, and up to 99 cents worth of change. But in this case, dealers ex-changed their stamps for 50 cents on the dollar. The merchants then took the food stamps to their banks and received the full face value in cash. The banks were reimbursed for the coupons by the Federal Reserve, and the Federal Reserve routed the food stamps to the U.S. Treasury for payment.

Melvin M. Stanford, the alleged ringleader of the scheme who is being held on $2 million bond, owned an unassuming-looking grocery store in West Baltimore and was part-owner of a second grocery outlet a few blocks away, according to Thomas Burke, assistant inspector general for the U.S. Drug Enforcement Administration,

Both stores were first authorized by the U.S. Department of Agriculture in July to redeem food stamps, Burke said.

"We are not sure just how the drug dealers were unloading their food stamps before their own stores were certified," Burke said. "But there are fences for food stamps all over the country. So they could have collected food stamps on the East Coast and traded at a discount for cash somewhere on the West Coast or in Puerto Rico."

While drug enforcement officials talked today, armed agents stood guard over a table spread with five pistols and dozens of bundles of $10, $20, and $50 bills dumped from a plastic trash bag and a blue and red nylon pouch.

According to government figures, there are about 200,000 food stamp recipients in the city of Baltimore and 22.2 million nationwide. (A qualifying family of four can receive a maximum of $233 worth of food stamps a month, according to officials in the food stamp program.)

Food stamp recipients can pick up their monthly allotment of stamps at their local public assistance office, get them in the mail, have them electronically credited to a food-stamp account at an issuing office, or sent to them in the form of a check or voucher that can be exchanged at a bank for food stamps. All of these procedures are designed to save the stamps from theft.

But food stamps used in illegal drug transactions frequently have been stolen from legitimate recipients, according to David Fike, regional DEA inspector general. Other stamps used in the scheme were counterfeit or genuine ones obtained by fraudulent applications.

The investigation was triggered eight months ago after Baltimore police received reports that stamps were being accepted on the street as currency for hard drugs, according to Lt. Joseph Newman in the narcotics division of the city police.

"We were told that drug dealers were willing to accept anything, even food stamps, for their drugs," Newman said.

Burke said that although the exchange of food stamps for drugs is done on a small scale in other cities, the problem appeared to be particularly serious in Baltimore. Several agents were assigned to penetrate two alleged Baltimore drug rings by making regular purchases of heroin with food stamps, he said.

Officials are still searching for five other people in the Baltimore area in connection with food stamp fraud.

The 15 arrested included Stanford, 35, the alleged head of a heroin-trafficking ring, and Robert F. Torain, 22, the alleged organizer of another group, who turned himself in to officials today.

Torain is being held in lieu of $50,000 bond. The men are charged with the unauthorized acquisition of food stamps and the illegal sale of heroin, according to federal officials.

The combined heroin sales of the two alleged drug rings constituted roughly 40 percent of all the heroin traffic in the city, officials said.