For American expatriates, Bocas del Toro seemed the ideal retreat: an archipelago of white sand beaches, coconut palms and guesthouses off Panama's Caribbean coast. It was relaxed, friendly and sunny. Then people started to disappear.

It was a fluid community, people always coming and going, so there was no immediate alarm. Why worry? The only danger in this tranquil haven, it seemed, was the tap water.

But there was another menace: the cheerful husband and wife who ran a hostel were, it is alleged, serial killers who murdered up to nine people for their property and money.

William Dathan Holbert and Laura Michelle Reese were in a jail in Panama City today suspected of conning and killing seven fellow US expatriates and two Panamanians in cold blood.

The man known to neighbours as "Wild Bill" has confessed to murdering seven people, said Angel Calderon, a prosecuting attorney. "He has told us how many people he killed, why he killed them, how he killed them and where he buried them."

Posing as wealthy entrepreneurs, the couple allegedly befriended residents before shooting them in the head, burying them and taking over their homes and businesses. "He picked out his victims after making their acquaintance," Calderon told reporters. "Knowing that nobody would ask about them, he got rid of them."

President Ricardo Martinelli called it "one of the first cases of serial murders" in the central American country.

The tale has shades of The Talented Mr Ripley, the novel – and later film starring Matt Damon – about an expatriate killer, except that Holbert reportedly started out with bodybuilding, steroids, white supremacy and a fascination with Adolf Hitler.

The case broke when authorities found the bodies of Cheryl Lynn Hughes, a hostel owner from Missouri, and Bo Icelar, a retired gallery owner from New Mexico, in shallow graves. Suspicion turned to Holbert and Reese, who had lived in the archipelago under the aliases William Adolfo Cortez and Jane Cortez. They had supposedly bought Hughes's hostel and Icelar's house just before the disappearances.

Authorities have also linked the couple to the disappearance three years ago of Mike Brown, his wife and young son. Brown was wanted on drug charges and living under an assumed name, Calderon said. "Seeing that he had a lot of money and bank accounts, [Holbert] shot him in the head." The other two suspected victims were Panamanian workers.

Nicaraguan soldiers held the couple last Thursday as they attempted to enter the country illegally from Costa Rica. They were extradited in shackles and greeted in Panama City with a tumult of television cameras and questions.

Before disappearing into a cell, Holbert, 30, appearing upbeat, told a local TV channel: "The people of Panama are very friendly, and I like living here." Asked about the deaths, he laughed and said: "I need to speak to them [the authorities]about that. I just want to say, thanks for the trip." His wife reportedly said nothing beyond asking for a lawyer and US consular help. Both suspects were due to be given psychological evaluations.

Seven years ago Holbert was married with three children and running a landscaping business in North Carolina. The marriage failed, he filed for bankruptcy and stopped paying child support.

He reportedly started bodybuilding and taking steroids, which made him more aggressive, and developed a fascination with the TV gangster Tony Soprano. He also acquired white supremacy tattoos and sold memorabilia with swastikas.

Holbert briefly managed a gym, where he met his next wife, Reese, and impressed the boss despite stealing $25,000. "If only he could have focused himself, he had a brilliant mind," Kevin Hoover, who did not press charges, told the Associated Press.

Holbert then sold a $200,000 coastal home and a car he didn't own. He used aliases and eluded authorities in six states, once escaping in an off-road, high-speed chase in Wyoming, and landing a spot on America's Most Wanted.

Ariel Barria, a spokesman for Panama's police, said the fugitive was cooperative and greeted everyone when brought into custody. "He appeared very friendly, like a film artist who is greeting his fans."