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$8 billion of CDs, sold through Antigua-based Stanford International Bank Ltd, were touted as safe investments that yielded a return that "greatly exceeded those offered by commercial banks".

HOUSTON, March 3, 2009 (Reuters) - Stanford Group Co's financial advisers are not hiding from their clients, despite selling them certificates of deposit the U.S. government says were used in a massive Ponzi scheme.

They even held a meeting recently with people who may have lost their fortunes in the fraud and, perhaps strangely, there was more empathy and dark humor than anger on display as both advisers and clients shared a sense of betrayal.

"When something like this happens, it kind of knocks the legs out from under you," Mark Groesbeck, a Stanford Financial advisor, told a meeting of the firm's clients in Houston last week. "I was shocked."

The U.S. Securities and Exchange Commission has accused Texas billionaire Allen Stanford, his top aides -- Chief Financial Officer Jim Davis and Chief Investment Officer Laura Pendergest-Holt -- and three of Stanford's companies of running the scheme over at least a decade and misappropriating at least $1.6 billion of investors' money.

"Apparently those three people have some answers," Groesbeck told his clients after they quizzed him about his knowledge of the alleged scam.

In a Ponzi scheme earlier investors are paid with money from later investors.

Stanford used fraudulent performance data to "recruit registered financial advisers with significant books of business," who were then "heavily incentivized" to reallocate client assets to the CDs, the SEC's latest lawsuit said.

Those $8 billion of CDs, sold through Antigua-based Stanford International Bank Ltd, were touted as safe investments that yielded a return that "greatly exceeded those offered by commercial banks" in the United States, the government said.

Groesbeck and more than 20 other brokers who have seen their clients' and their own investments frozen by a court- appointed receiver have filed court papers seeking relief from a federal judge.

"This is outrageous," Trevor Ling, another Stanford broker said about his clients' inability to tap their funds.

Ralph Janvey, the court-appointed attorney overseeing Stanford's operations and assets, froze some investor accounts in mid-February in a bid to preserve assets for later distribution to creditors and investors.

He described the company's finances as "dire" on Monday and Stanford workers have not been paid in recent weeks, an issue Janvey said is one of his top two priorities.

The law firm representing the brokers said in an email sent last Thursday that their clients are facing "extreme hardship" due to the freeze.

TRUST

Ling's clients include retirees Arlene and Michael Levine, who have had a particularly tough time recently. The Chicago- area natives saw their house in Galveston, Texas, flooded by Hurricane Ike in September and live in temporary housing in Houston.

And now, they have no access to a large part of their retirement savings invested with Stanford. The Levines, who consider themselves conservative investors, put $300,000 into Stanford CDs at the urging of Ling.

"It was presented so well to us," Arlene Levine, said at the meeting, adding that the couple was never pressured by their adviser with whom they are still on good terms.

"I'm in massive denial that everything could be totally gone," she said.

The Levines followed Ling to Stanford from another brokerage a few years ago. They believe he had nothing to do with the scheme the government alleges.

"He wouldn't be a scam artist," Michael Levine said.

At the Houston meeting between brokers and their clients, that trust was evident. Advisers moved about the room, doling out handshakes, hugs and kisses to their clients. Most anger was directed at the court-appointed receiver who froze the Stanford accounts.

Arlene Levine remembers being wined and dined at Stanford's Eagle Room restaurant in Houston.

"That might have been a really expensive lunch," Levine said in reference to the possibility of losing her investment with Stanford.