UPDATE 2-Accused Colombian scam boss capture sparks unrest

(Adds political impact, paragraphs 7,8)

By Hugh Bronstein

BOGOTA Nov 20 (Reuters) - The accused boss of a Colombian financial pyramid scheme that threatens investors with millions of dollars in losses was arrested on Thursday, sparking violent protests over government actions to shut the business down.

David Murcia, head of financial agency DMG, was caught in Panama as he tried to flee into Costa Rica. He was extradited to Colombia, where he and his directors face charges of money laundering and other financial crimes, police said.

The scheme is one of several in a growing financial scandal that has sparked riots as mostly poor investors try to recover their savings and analysts warn about the impact on Colombia's already slowing economy.

Authorities are probing possible links between DMG and Colombia's multibillion-dollar cocaine trade. An attorney for the firm has said the company's managers are innocent.

President Alvaro Uribe, who admits he was caught off guard by a series of pyramid scheme scandals that erupted last week, has shut down about 60 DMG stores at which clients used special debit cards to buy goods as part of their financial contracts.

At least two people were killed in riots last week when the bosses of other companies, which had promised up to 150 percent interest, started disappearing with suitcases full of cash.

The investment losses were expected to hurt consumer spending at Christmas and reduce Uribe's chances of getting a constitutional amendment through Congress that would allow him to run for an unprecedented third term in 2010.

"If you consider the economy, the growing social unrest and the way the government has mishandled this issue, Uribe's chances are dimmer," said political analyst Ricardo Avila.

DMG clients took to the streets of Bogota on Thursday to protest the store closings. They refuse to turn their cards over to the government, saying DMG never reneged on its deals.

"With DMG we never lost, with the government, yes," said Carlos Rodriguez, who invested 28 million pesos ($12,000).

Uribe says he will help victims recover their losses, but uncertainty remains high.

Dozens of clients who lined up at a local football stadium to fill out papers to turn their DMG debit cards over to the government here attacked by the protesters, who punched and kicked them, calling them traitors, before police intervened.

Nearby stood stood 60-year-old Maria Christina, who deposited 2 million pesos ($850) with DMG 15 days ago.

In return she was given two DMG cards. One entitled her to get her 2 million pesos back in six months and the other with 2 million pesos in credits to be used in DMG stores to buy electronic and other goods during the six-month period.

Looking scared by the violence around her as police used armored vehicles and tear gas to battle protesters, Maria Christina, who would not give her last name, said she did not know what to do.

"I'm afraid that if I turn my card over to the government I will never get anything back," she said. (Reporting by Hugh Bronstein and Patrick Markey, Editing by David Storey)