Investors caught as regulators swoop on Stanford

By Svea Herbst-Bayliss

BOSTON, Feb 17 (Reuters) - Shouting reverberated through the hallway of a Houston office building as one investor demanded the return of the $250,000 he had invested with Stanford Financial Group.

In the company's Baton Rouge office, another banged his fist on a desk, insisting he get his money back.

Then there were the hundreds of telephone calls to Stanford's army of investment advisers from anguished clients who just wanted to know where their money was.

Emotions, already running high last week on news that regulators were probing Stanford, exploded on Tuesday when the U.S. Securities and Exchange Commission charged that billionaire Allen Stanford and three of his companies had run an $8 billion "massive ongoing fraud," offering and paying unusually high interest rates for certificates of deposit.

The charges come only two months after regulators arrested Wall Street investment manager Bernard Madoff for allegedly masterminding the biggest-ever Ponzi scheme.

"On a scale of one to 10, infinity," said Brett Zagone in Houston, describing the anxiety she was feeling about the whereabouts of the life savings and inheritance from her mother that she had entrusted to Stanford.

Houston-based Stanford, which sold CDs issued by its Antigua-based Stanford International Bank, promised Zagone an 8 percent return, a tantalizingly high rate at a time U.S. banks' yields on these types of investments are far less.

"People are frightened, panicking and looking for help," said Jacob Zamansky, an investor lawyer and founder of law firm Zamansky & Associates in New York.

Just a few weeks ago, some investors had heaved a sigh of relief when Stanford officials told them it had not bought subprime mortgage debt and had avoided investing with Madoff.

Madoff, who is accused of running a $50 billion fraud, cultivated an exclusive image and hunted for customers at tony golf courses and charity events.

Allen Stanford, on the other hand, made nearly everyone feel welcome to invest.

MONEY LOCKED UP

The flamboyant Texan, who ran the firm founded by his grandfather, attracted investments via television commercials and built a wide-reaching network of financial advisers hired from prominent firms like U.S. Trust and Wachovia.

Stanford also underwrote sports events ranging from golf and tennis to sailing and cricket.

In turn, a wide swath of investors including retired businessmen, young entrepreneurs and middle-class Americans put their money into the short-term CDs that promised the high returns. Many expected the CDs would be federally insured.