Those who know wealthy Lebanese Shi'ite financier Salah Ezz el-Din say he is a deeply pious, humble man whose close links to Hezbollah made his credentials impeccable as he allegedly embezzled their savings.

Many Shi'ite Lebanese investors find it hard to believe the philanthropist could have defrauded them to the tune of at least $500 million -- small change compared with the $65 billion in the U.S. fraudster Bernard Madoff's Ponzi scheme, but made more painful by the connection with Hezbollah, which its followers regard as incorruptible.

Whoever says he's a thief, that is an incorrect assessment, said Fouad Ajami, a 36-year-old steel factory owner from the southern Lebanese village of Toura of the embezzlement charges made earlier this month against Ezz el-Din, who is now in Roumieh prison and due for more questioning on September 24.

The charges include issuing cheques without sufficient funds.

He was a do-gooder, he may have been subjected to a financial setback, said Ajami. And because he didn't want to show that, maybe he created ghost investments to cover his losses.

Some Hezbollah officials have also lost money with the financier, from whom Ajami said he had at first received returns of 30 percent annually.

Among what meager paperwork the factory owner has retained are two cheques worth a combined $675,500 that bounced, with Canceled stamped in red.

He says he personally lost more than $500,000 to Ezz el-Din, whose holdings included a tour company that arranged for pilgrims to go on the annual haj pilgrimage to Mecca.

The financier lived in the village of Ma'aroub in southern Lebanon, the political and guerrilla group's bastion, which benefited from his goodwill with the construction of Shi'ite mosques and a football ground.

Ezz el-Din was also said to pay for fellow villagers' medical bills, compounding the Hezbollah connection for many people. Hezbollah also provides a network of social welfare services from education grants to subsidized medical treatment.

To tell you the truth, people put their money with him because he was wearing the Hezbollah cloak, Ajami said.

Iranian-backed Hezbollah has a reputation for squeaky-clean honesty among its followers and famously compensated Shi'ite residents in southern Lebanon with $100-bill stuffed suitcases after the 2006 Israel-Hezbollah war.

CRISIS Center

That connection has been a political embarrassment, forcing Hezbollah leader Sayyed Hassan Nasrallah to address the issue. He denied any official connection to the financier but promised to set up a crisis center to assess the needs of those affected.

Hezbollah is one of those affected by the crisis, but it won't leave the people to their destinies. Actually, it creates an environment that will protect them security-wise, politically ... and even economically, Nasrallah was quoted by local media as saying.

This may be a reason why for now at least, many duped investors have refrained from filing lawsuits against Ezz el-Din and his partner Yousef Fa'our.

Political sources say Ezz el-Din's cover was blown after a Qatari investor who wanted $9 million suspected him of stalling. Hezbollah officials privately say they suspect him of fraud.

Part of Ezz el-Din's appeal was that he promised large returns on investments which he said were from oil and gas, iron and steel projects outside Lebanon.

And flush with cash in the post-war reconstruction boom, many investors found the get-rich-quick scheme attractive.

Ajami said he first invested $90,000 after the 2006 Hezbollah-Israel war.

Every two months, I received a check worth $4,950, he said. Then his agent told us about investing in an Iranian gold mine which would guarantee profits of 20-25 percent within 100 days. On August 22, I gave him $50,000 and my friend gave him $200,000. Shortly after, Ezz el-Din was arrested.

I was in shock. I spent the first 24 hours laughing uncontrollably, Ajami said.

Ajami is reluctant to call Ezz el-Din a fraud, but says his own reputation has suffered since fellow villagers, who were often poorer, entrusted him to invest their money.

We were considered respectable people, Ajami said. Now an onion-seller thinks we're stupid. We are bankrupt. I have had to mortgage some of my property to pay people back.

CONSPIRACY THEORY

Ezz el-Din's hilltop mansion, lined with trees and bougainvilleas, overlooks the lush green fields of Ma'aroub. A spiral, paved driveway leads to a huge villa that is now empty save for Mostapha, the caretaker, who tends to the menagerie of chickens, pigeons, birds, horses and a flamingo.

Mostapha says the mansion's internal doors are all sealed with red wax.

The village, like many in the south, is virtually empty, save for multi-million dollar villas whose occupants generally live abroad and only visit Lebanon in the summer.

It is widely said that the majority of Ezz el-Din's early investors were Lebanese emigrants who were not in the country often to study closely their investments.

Hussein Fneish, the head of Ma'aroub's municipality, also attested to Ezz el-Din's reputation, but said Ma'aroub was severely affected by the crisis, losing $5 million: It will take two years until the village is back to normal.

Political sources say the Lebanese central bank warned some investors a few months ago about Ezz el-Din. But it seems many refused to heed its warning.

Haj Kamal Shour, who with his three sons lost $1.03 million, said he never thought about investigating the investments, some of which they were led to believe were in Africa or Brazil, because of Ezz el-Din's honesty and integrity.

He believes a bigger conspiracy is behind Ezz el-Din's demise: the Israeli Mossad and Zionist Lobby.

They look at where a Shi'ite is working, and try to destroy him. I don't discount this possibility, Shour told Reuters.

We are in a difficult financial environment. The last thing we expected was that he would go bankrupt. But everyone trusts Salah Ezz el-Din. He is an excellent, honest, good human being.

(Editing by Sara Ledwith)

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