THOUSANDS of pounds worth of counterfeit £20 notes have been seized by Torbay police.
The public, pubs and shopkeepers are now being warned that more of the fake notes may be circulating around South Devon and Exeter.
Two men have been interviewed by police. An investigation is on-going.
Police say they believe they may have been involved in money-laundering, rather than the brains behind the counterfeit operation. A woman has also been cautioned. The alarm was raised in a Torquay town centre pub and police arrested a man carrying a wad of the notes, worth about £1,000.
A search at a Torquay address revealed another stack of fake notes worth about £1,000.
The counterfeit notes have been sent to the Bank of England for an evidential statement.
DC Mike Locke said: "There is roughly £2,000 worth of £20 notes.
"A man had walked into a pub in Torquay and bought a drink with a £20 note.
"The pub had heard on the grapevine from another licensee that fake £20 notes were circulating.
"He alerted us and the CCTV followed him.
"We arrested a man and he had one big wad of notes on him, and a lot more at his home.
"We do not believe that the two suspects we have spoken to are the brains behind it."
Police say that many of the notes have the same serial number.
They warn pubs and shops to beware of people making relatively small purchases and using £20 notes.
Police believe that local, small-time criminals buy the counterfeits at a knock-down price and then make money by exchanging them for real cash in shops and pubs.
Two men were held in custody and interviewed before being released on police bail for eight weeks.
A woman from Exeter was also interviewed and has been cautioned. Inquiries relating to another man and woman continue.