Q&A: Stanford Bank fallout in Latin America

(Reuters) - Latin America has been hard hit by accusations that Texas billionaire Allen Stanford perpetrated a giant scam with some $8 billion in high-yield certificates of deposit sold by Stanford International Bank.

Stanford securities issued out of the Caribbean island of Antigua were heavily marketed in countries such as Venezuela, Ecuador, Colombia, Peru and Mexico where political and economic instability make savers unwilling to keep money at home.

The following are basic questions and answers about Stanford Bank's impact in Latin America.

Q: How much money did Latin Americans invest in Stanford's high yield deposits?

A: The combined total is believed to be several billion dollars, though authorities still do not have clear figures because they did not regulate offshore securities. Venezuelans could have put $2.5 billion in the CDs, the banking regulator said, but admitted that was a loose estimate.

Q: What types of people had money with Stanford?

A: Unlike Bernard Madoff's now-infamous pyramid scheme which targeted the uber-wealthy, Stanford sold heavily to Latin America's middle and upper-middle class savers.

Venezuelans wary of President Hugo Chavez's socialist crusade used Stanford to stash money offshore and escape galloping inflation and currency controls.

Despite recent high-profile pyramid schemes in Ecuador and Colombia, upper middle class people in both countries were lured by the promises of security and higher returns on their dollar deposits than they would get in Latin America.

It is still not clear if household name Latin Americans also lost money in the scheme.

Q: Why was Stanford so successful in Latin America?

A: In part because the region has a history of bank failures, hyperinflation and political instability. The rise of populist governments such as Chavez and Ecuador's Rafael Correa have left wealthier residents worried the government could snatch their savings.

Peru, which has extensive illegal coca cultivation, has begun investigating possible links to narcotrafficking. The government of Colombia, the world's largest cocaine producer, has not mentioned any such investigation.

Q: How can Latin Americans get their money back?

A: Funds in Stanford accounts are currently frozen after a U.S. Federal Court in Texas put the company in the hands of a receiver. Depositors seeking their money will likely rely on legal action in the United States against Stanford.

However, the receiver will have to determine how much money is available to return to depositors and which depositors will receive priority. The receiver is only now starting the process of valuing Stanford's assets.

Q: Are Latin Americans panicking over the Stanford situation?

A: Though angry depositors have formed lines outside Stanford offices, the response has remained measured. Most people involved have received promises -- possibly false ones -- that their money will be returned to them. They are unlikely to speak out unless it becomes clear they have lost their investments.

Investors have also avoided publicly complaining because they do not for security reasons want to be identified as wealthy.

(Reporting by Brian Ellsworth in Caracas, Terry Wade in Lima, Alonso Soto in Quito and Pat Markey in Bogota; Editing by Bernard Orr)