“There is little joy these days at the Blue Marlin Bar, where old gringos spend a lot of time crying in their beers,” writes Jose De Cordoba in today’s Wall Street Journal.

” ‘I’ve had it, I’m done, the money’s gone,’ moaned B.C. Bryant, a 69-year-old retired family therapist from California, as he called for another drink. ‘I’m leaving this country.’ On the next bar stool, a muscular man sporting a baseball cap with the legend “Once a Marine, Always a Marine” muttered about his own battered finances.”

“Foreign retirees in Costa Rica have been in a black mood since word spread a few months ago that something had gone terribly wrong at an investment operation known here as ‘The Brothers Fund.’ “

“Run by siblings Luis Enrique and Osvaldo Villalobos, the fund seemed to defy gravity in an era of plunging 401(k)s. For a minimum investment of $10,000, clients received monthly interest payments of 3% — working out to a hefty 36% annual return.”

“Luis Enrique Villalobos, whose active role in a local Baptist church belied an adventure-filled past, was choosy about his clientele. The 63-year-old public face of the fund, Mr. Villalobos only accepted money from people who came recommended from existing investors. He didn’t offer many details of his business, run out of a foreign-exchange house in an upscale shopping mall, and clients didn’t tend to ask many questions.”

” ‘He’d be a fool to tell people exactly how he did it,’ says Mr. Bryant, who says he invested $110,000 with the fund six years ago and lived well off the $3,300 monthly interest. ‘I thought he made it in the international money markets.’ “

“Over the years the investors, and the money, rolled in. That’s partly thanks to Costa Rica’s reputation as a retirement paradise for North Americans eager to escape the cold northern winters. About 35,000 Americans and 6,000 Canadians are believed to live here. Expats rave about the country’s tropical beaches and jungle volcanoes, pleasant climate, fabulous deep-sea fishing and cheap living.”

“Some of them are also here to enjoy Costa Rica’s lax legal system. The country has become known as a hideaway for American tax evaders and con artists, who disappear seamlessly into the large gringo population. Just last week, Costa Rica extradited the founder of a large U.S. tax-protest organization, Keith Anderson, after determining that officials had granted him Costa Rican citizenship by mistake.”

“The brothers’ operation played off clients’ desire for discretion. ‘Privacy and security are very important to us,’ read an information sheet handed to potential investors. ‘If someone were to inquire about you here, we don’t know you.’ “

“Unfortunately for investors, somebody eventually did inquire: the Royal Canadian Mounted Police. In July, Mounties presented Costa Rican officials with evidence that alleged Canadian drug dealers had deposited at least $300,000 of their ill-gotten gains with the brothers. Police raided the premises of Ofinter Foreign Exchange SA, the brothers’ foreign-exchange business, on suspicions of money laundering, and froze $7 million in bank accounts.”

“After the raid, Ofinter protested its innocence and Brothers Fund reopened. Apparently using money from nonfrozen accounts, Luis Enrique Villalobos was able to pay interest to a long line of clients who collected their cash in manila envelopes, say investors. But by September, the brothers were in dire straits. In a fax whose address line read ‘God Bless You,’ Mr. Villalobos urged clients to ‘make additional contributions to my business.’ On Oct. 14, Ofinter closed its doors for good and Luis Enrique Villalobos vanished.”

“Costa Rican authorities have issued a warrant for Mr. Villalobos’ arrest on fraud and other charges. Two weeks ago, brother Osvaldo, 58, also charged with fraud, was arrested in Costa Rica. Osvaldo’s lawyer denies his client broke any laws. Luis Enrique couldn’t be reached for comment.”

“Now dazed investors and curious prosecutors are puzzling at how the Brothers Fund was able to deliver such high yields for so many years. If, as many suspect, it was a Ponzi scheme, it was a very unusual one. Typical Ponzi schemes, where the money garnered from late-arriving investors is used to pay off earlier investors until the fraudsters suddenly vanish, tend to collapse within a few years at the most. But investors say the Villalobos brothers were operating for more than a decade.”