District officials have known for more than two years that a financial investment firm was offering banking services to Spanish-speaking immigrants without a banking charter and without federal deposit insurance, but, they said yesterday, they could do nothing to stop it.

The firm, Latin Investment Corp., shut its doors a week ago because of financial problems, leaving thousands of Hispanic immigrants without access to their deposits.

In early 1988, the District's Office of Banking and Financial Institutions informed Latin Investment that it needed a banking charter to continue operating in the city, said Joseph Lopes, the office's deputy general counsel.

But Latin Investment President Fernando Leonzo failed to apply for a charter, and the D.C. banking office lacked the authority to force him to comply with the law. The D.C. Council has not passed legislation to give the four-year-old banking office authority to enforce the laws under its jurisdiction.

"It was clear then that this was a very dangerous situation," Lopes said. "But there was nothing we could do."

Council member Charlene Drew Jarvis (D-Ward 4), whose council committee oversees the banking office, said yesterday that she would investigate how the problem was handled. "There was some agency that had jurisdiction over this, and we intend to find out what everybody did," she said.

However, Jarvis and her committee have played a central role in the development of banking regulations. Her committee repeatedly has blocked legislation that would define what the banking office should do and what regulatory powers the D.C. banking superintendent should have.

Jarvis said the D.C. corporation counsel is the only agency that could have taken the issue to court.

Lopes said the banking office did ask the corporation counsel to investigate whether Latin Investment had violated the D.C. Code.

"They said there were 'very possible' violations, but they didn't have enforcement authority either," Lopes said.

Sources said the corporation counsel referred the matter to the U.S. Attorney's Office, which in turn forwarded the case to the Internal Revenue Service's International Division, which oversees cases involving money laundering and tax evasion.

"For two years, we just watched this case go from one agency to the next," said a former member of the banking office staff. "It just fell between the cracks."

Although the banking office continued to monitor the case, sources said, the next time the office actually had contact with Latin Investment was Nov. 30, when Leonzo came in pleading for help.

Sources said Leonzo told staff members that his business no longer could meet depositors' demands; after months of giving out more money than he was taking in, his reserves had dried up. Although he had plenty of assets -- rental properties and houses that Latin Investment had bought with depositors' money -- he lacked cash.

"He asked us to issue an order to shut his business down," said one banking office staff member who attended the meeting. After discussing the situation further, banking office officials determined that there was nothing the office could do.

"We had to let this bubble burst," one source said. "We couldn't come in and prohibit them from doing business when they never had permission to do business in the first place. It was ludicrous."

Leonzo could not be reached for comment yesterday.

Meanwhile, thousands of depositors are increasingly worried about the safety of their money.

"It's close to panic," said Rita Soler-Ossolinski, the acting director of the Mayor's Office on Latino Affairs. "I can well understand these individuals' concerns, because they haven't gotten any clear response."

"This is all I had in my life," said Oscar Leonel Portillo, 22, a cook at a Japanese restaurant. "With that money, I was going to open a business in Guatemala." Portillo said he had $12,800 in an account that was a little more than a year old.

Portillo and others expressed faith that they would recover their money, because, they said, Latin Investment was a bank and the government would never allow so many people to suffer.

But Latin Investment did not have regulatory authority to accept deposits or make loans, according to local and federal regulators. It is not insured by the Federal Deposit Insurance Corp.

Latin Investment customers said they believe that because the firm accepted deposits, made loans, offered check-cashing services, wire transfers and paid the bills of its customers through their accounts, it had to have been a bank.

Several community agencies are referring confused depositors to the Wilson Community Center, 2401 15th St. NW. There, a weary executive director, Elaine Grant, has overseen the collection of the names of more than 1,500 customers in less than 24 hours.

"It's the saddest thing I have ever seen," she said. "The people are absolutely stunned. There's absolute disbelief. There was a level of trust that has been violated."

Grant said droves of people have continually streamed into the Wilson Center, carrying with them the red passbooks showing their savings history with Latin Investment.

The people have been leaving their names and the amounts of money they had deposited with Latin Investment. Grant said the figures range from a low of $900 in savings to a high of $90,000 for one person.

"It's a shame," said Grant, upon hearing of the regulators' knowledge of Leonzo's operation. "It's a shame that those arms of government who knew were unable to warn people who had their money there."

Yesterday, a new sign was placed in the doorway of Latin Investment, 1704 R St. NW, greeting a constant vigil of depositors who have streamed to the office.

The sign, written in Spanish, said the firm was closed "because of major developments regarding the operating license. We are temporarily closed. The operation will reopen as soon as possible." That sign replaced one that said the firm had been closed due to auditing.

Leonzo, who also owns a major share of El Latino, the largest circulating Spanish-language newspaper in the District, has not made a public statement since he called a radio station Wednesday night to reassure depositors.

Causton Toney, former general counsel for the D.C. banking office, said that there has not been a determination that Latin Investment was involved in a banking business.

Jarvis has called an inter-agency meeting to discuss the crisis today. A community meeting also has been tentatively scheduled for Sunday, but a time and place have not been set.