A television broadcast featuring Salah Ezzedine

The leisurely chit-chat over sweet tea that usually follows the iftar, the breaking of the fast every evening during the Muslim holy month of Ramadan, has been replaced by heated discussions at the home of the mayor of Toura, a hilltop village in south Lebanon.

The topic of conversation is the spectacular bankruptcy and detention of a prominent businessman from the area, who is close to Hizbollah, the powerful Shia militant movement.

Salah Ezzedine, who has been dubbed “the Lebanese Madoff” by the country’s media after Bernie Madoff, the convicted US fraudster, may have lost hundreds of millions of dollars of his investors’ money.

The prosecutor, Said Mirza, said: “The case involves hundreds of millions of dollars and several countries”.

Like countless others among the Shia Muslim community in Lebanon and in the Gulf, many people in Toura have lost their life savings.

“It is a catastrophe for us – not only for us, but for all the people in the south,” says Mohammed Hassan Duheini, the village mayor.

The Shia community, poor and long ignored by the Lebanese government, has been stunned by the news. The financial scandal also threatens to embarrass Hizbollah, which is hailed by much of the Arab world as a resistance movement against Israel and prides itself on its austere religious image, but which is seen by Washington as a terrorist group.

Path to ruin

Salah Ezzedine was born in the southern Lebanese village of Maaroub near the port city of Tyre, about 50 years ago.

He lived in Beirut’s southern suburbs in the 1980s where several contemporaries say he was involved with a Shia Islamic group close to Iran, which was one of the precursors to Hizbollah. He is said to have been an ideologue rather than a politician or fighter.

He guided pilgrims to Mecca and Medina in the mid-1980s, and set up the Bab el-Salam travel agency for the Hajj pilgrimage. In the 1990s he started Beirut’s Dar al-Hadi publishing house, which has been accused of being a propaganda arm of Hizbollah. He was taken into custody in the past 10 days after, according to local media, giving himself up and filing for bankruptcy.

Beyond acknowledging that Mr Ezzedine has declared himself bankrupt, and then been taken into custody the Lebanese authorities have not given any details on the case during the past 10 days. It is unclear if they are investigating a Ponzi scheme. Mr Ezzedine has not been charged and the Beirut Bar Association could not even yet say who his lawyer is in this case.

A central bank official, however, has estimated that some $400m (€275m, £242m) of invested capital could be missing.

Investors say they were lured by the promise of improbably high returns. They mention 20, 30 and even 60 per cent annual profits that Mr Ezzedine’s middlemen said were “guaranteed”. In order to conform to Islamic law, such proceeds were described as profits from projects rather than interest.

Half of the missing capital is from investors in the Gulf and the other half from Lebanon, according to the central bank official. In the Gulf, it seems that Qatar and its small Shia community have been particularly hard hit. Qatari banking insiders say the loss amounts to $180m, although it is not clear yet whether that includes anticipated profits.

Mr Ezzedine hails from Maaroub, a neighbouring village to Toura, and was trusted partly because he was close to Hizbollah, investors say. Even now, several of those affected say they will hold off on legal action because they hope Sayyed Hassan Nasrallah, Hizbollah’s leader, will compensate them.

The Lebanese media have reported that senior Hizbollah figures themselves lost money in Mr Ezzedine’s schemes but some of them denied this. Mr Nasrallah denied on Tuesday that senior leaders or the movement itself had any connection to the case, according to Al-Manar, Hizbollah’s television station.

Much of the money came from small Shia investors who bundled together remittances from relatives overseas and had a representative invest for them. Mr Duheini estimates that between 200 and 250 people invested $10m to $15m with Mr Ezzedine in Toura alone.

He says many smaller investorsmortgaged their homes or businesses to invest. “The problem will really hit when the banks start calling in these loans,” he predicts.

An investor in Maaroub said his grandmother mortgaged her bakery to invest $25,000 with Mr Ezzedine. “We saw what other people were making and thought that it would be stealing from ourselves if we didn’t do it,” he said.

One of the middlemen in Maaroub, Youssef Faour, was known as Mr Ezzedine’s representative for the south, say the investors in Toura. One man says he invested $485,000 with Mr Faour on August 22, shortly before he was taken into custody.

Mr Faour’s sister Dalal, who owns a clothing shop in Maaroub, denies any wrongdoing on his part. “We are victims like everybody else. We sold land in Beirut in order to invest.”

For the large sums, Mr Faour gave cheques equal to the amounts invested as collateral. They were issued in the name of the Société Trans-Golf pour le Commerce et l’Industrie.

The business was registered in Baabda, next to Beirut, and owned by Mr Ezzedine. It has been declared bankrupt: people who tried to cash the cheques last month discovered that the account was empty.

Sometimes, investors were told that their money would be invested in commodities such as oil. But in many cases, they say, no specific investments were mentioned and receipts were optional.

One investor in Toura showed the Financial To,es a simple printed sheet of paper purported to be a receipt for $445,000, which he and a group of friends had invested with one of Mr Ezzedine’s middlemen. On the printout, dated October 31 2008, the company that accepted the money is named as East Line, and the general director Mr Ezzedine.

East Line appears to be one of the investment vehicles that Mr Ezzedine used. In June 2008, Yahya Jammeh, the president of the Gambia, issued a statement saying that he had received a cheque for $200,000 for “royalties paid to the Gambian government by Salah Ezzedine of East Line Company, for 10,000 tonnes of sand minerals exported from the Gambia”.

Many who invested with Mr Ezzedine still refuse to believe that he defrauded them. They point to his legitimate business ventures and say these fell victim to the financial crisis.

But one older man in Toura, who says he invested $50,000, rails at Mr Ezzedine’s defenders: “They are all thieves. I don’t care what anybody says.”