Scam cost investors $3.5m, SEC says

In documents filed in federal court in Boston this week, the government accused Joseph A. Roche, 44, of Braintree, and Kathleen S. Dobens, 45, and Charles T. Dobens, 45, of Duxbury, of “playing a shell game with investors’ funds.’’

In one alleged scheme, the SEC said, Roche and the Dobenses created a Duxbury corporation called Silex Group LLC. It sold investors promissory notes and other securities and promised to invest the proceeds in “multi-family housing assets,’’ the SEC said.

In some cases, investors were guaranteed interest of 9 to 12 percent per year.

To safeguard the investments, Roche and the Dobenses purportedly told investors Silex owned several apartment complexes worth more than $20 million, with additional buildings under contract. It posted pictures of some properties on its website.

But Silex did not own those or any other buildings, the SEC said.

And instead of investing the money in real estate, the court documents allege, the trio used it to buy dinners, groceries, and other personal items, diverted some of the cash to other corporations they controlled, and, in at least one case, used the funds to repay an investor - a mark of a pyramid scheme.

The government said almost all the money raised by Silex has been spent. As of mid-February, the government said, Silex had $301 in its bank account.

Kenneth Gordon, the Boston attorney representing the Dobenses, said they were “defending the lawsuit,’’ but declined to comment further. Roche did not respond to calls or e-mail seeking comment.

But in court papers, Gordon and another attorney representing the defendants, Vincent M. Amoroso of Boxborough, said the SEC has a weak case, with only one investor complaining in an affidavit they said was riddled with misstatements.

The government also accused Roche and the Dobenses of defrauding investors in two other ventures that did own property - one in Texas, another in Kentucky - by promising returns of as much as 123 percent over five years.

But neither venture was ever profitable, the government said. Indeed, the Cherry Hills apartment complex in Fort Worth was foreclosed on and auctioned off in January, while Preakness Apartments of Lexington, Ky., is apparently in a precarious situation. In mid-January, Roche e-mailed some investors to ask for “additional capital to keep Preakness afloat for the year,’’ according to the government’s complaint.

“In sum,’’ the government said, the defendants “represented to investors that Cherry Hills and Preakness were low-risk investments that would produce substantial returns, none of which was true.’’

The SEC, which also accused Roche and the Dobenses of selling unregistered securities, went to court Monday to ask a judge to freeze the defendants’ assets and to block them from committing further securities violations. It also wants them to repay their “ill gotten gains’’ and pay a fine.

The lawsuit also named Silex, Cherry Hills, Preakness, and other related corporations as defendants.

In court documents, defense attorneys said the defendants did not intentionally do anything wrong.

“They relied on advice of counsel, and to the extent the advice they received was improper in any way, they have offered to correct any mistakes they may have inadvertently made,’’ the attorneys wrote.

For instance, the defendants shut down the Silex website after the SEC complained it misled investors by suggesting that Silex owned several properties it did not actually own; the defense attorneys contend the property was actually owned by Roche, the Dobenses, or other corporations involved in the case.

The defendants’ attorneys claim SEC officials tried to pressure one investor into signing an inaccurate statement, but she told them to “leave her alone.’’

The SEC declined to comment. It has not filed a response to the defense arguments.

Todd Wallack can be reached at twallack@globe.com.