SAN DIEGO -- Two men accused in a $1.3 million real estate investment scam targeting Hispanic owners of small businesses in North County pleaded not guilty Thursday to multiple charges of grand theft and making false representations in the sale of securities.

Alan Espiritu, 35, and Cesar Moreno, 40, were arrested at their homes Tuesday as part of a fraud investigation that has been under way since May of last year, according to the Carlsbad Police Department.

The two are accused of befriending non-English-speaking Hispanic business operators, often getting involved socially with their families and guaranteeing investment returns as high as 25 percent from the defendants' development company, Permex.

In some cases, alleged victims were encouraged to stop making home payments to invest with Permex, and lost their homes while receiving little or no return on their investments, according to Carlsbad police Detective Patty Parra.

"What makes this case so awful is that Espiritu and Moreno preyed on a vulnerable group of hard-working people who lived frugal lives, saving every dollar they could," Parra said.

Deputy District Attorney Lisa Missett alleged the defendants would patronize the victims' businesses, such as taco shops and hair salons, then get then to invest in the phony scam and pocket the money.

Most of those targeted were in North County, but some were in Chula Vista, Missett said, adding that there are 27 named victims but she expects the number to grow.

The prosecutor told Judge David Szumowski that some of the business owners lost their life savings by investing money with the defendants.

Outside court, Missett said the investigation started last year after someone called Carlsbad police to report giving money to Moreno and getting nothing in return. The alleged scam dates back to 2001, she said.

The prosecutor said Moreno worked at a bank and referred small business owners to Espiritu, who promised a $5,000 return on a $20,000 investment in two months.

Missett said Espiritu would have an alleged victim sign a promissory note saying he or she was investing in real estate, but in reality, the individual wasn't investing in anything.

Espiritu is charged with 68 counts and faces 36 years in prison if convicted, the prosecutor said. Moreno is charged in at least 18 counts and faces 15 years behind bars if found guilty.

Espiritu was ordered held on $1.5 million bail. Moreno's bail was set at $1 million. Szumowski scheduled a bail review for Tuesday.

Anyone who has information on more possible victims of the alleged scam is asked to call Parra at 760-931-2294.