Diamond McCarthy, LLP

The 7,900-square-foot Terrell Hills house occupied by jailed InverWorld Chairman Jose Zollino and his wife is up for sale after the failed investment company's court-appointed liquidator reached a settlement Wednesday in U.S. Bankruptcy Court.

Zollino's wife, Rosina Zollino, has until June 2 to move out of the house at 18 Elmcourt. After that, the house will be sold and the proceeds - an estimated $2.8 million - will be distributed to InverWorld's investors.

InverWorld was a San Antonio-based investment company serving wealthy Latin Americans.

It went bankrupt in 1999 and is the subject of several investigations.

A federal grand jury indicted Zollino last year on fraud charges, and a former InverWorld executive, George Fahey, pleaded guilty to money laundering and fraud in December.

The company's court-appointed liquidator, Len Blackwell of PricewaterhouseCoopers, has already auctioned off InverWorld's office building, furnishings and art collection.

Blackwell has distributed $89 million so far to InverWorld's investors, who claim they were defrauded out of about $325 million.

On Wednesday, Blackwell also sued InverWorld's former auditor, Deloitte & Touche, alleging negligence and accounting malpractice. Blackwell is seeking no less than $200 million in the suit.

New York-based Deloitte & Touche officials said they would "vigorously defend this suit."

"We are confident that our services were performed in accordance with applicable professional standards," the company said in a statement. "It is important to know that in the indictments of the two principals of the InverWorld companies, the U.S. attorney has stated that they intentionally misled their auditors."

A group of InverWorld investors had already sued Deloitte & Touche for negligence in 2000, and that lawsuit is still pending. But the suit that Blackwell filed goes further, accusing Deloitte & Touche of accounting malpractice, gross negligence, breach of fiduciary duty and breach of contract.

"Now we're getting to the point where things are accelerating," said Allan Diamond, a lawyer representing Blackwell.

Blackwell had been trying for several months to get control of Zollino's house to sell it and send the proceeds to investors.

But Zollino didn't own the house. Instead, one of InverWorld's subsidiary companies - controlled by Zollino's mother, Rosario Garcia Mora de Zollino - owned it.

After a great deal of legal wrangling and negotiation, Blackwell and lawyers representing Garcia Mora reached an agreement where Blackwell would get control of the subsidiary, the house and a condominium in Alamo Heights occupied by Zollino's daughter and son-in-law.

Blackwell said two potential buyers have already contacted him about the house.

Ironically, if Zollino had owned the house in his name, it might have been harder for Blackwell to seize it. In most cases, people who file personal bankruptcy in Texas are allowed to keep their homes.

"Texas' homestead protections are some of the strongest in the nation, but through his financial maneuverings, he put the house under control of a Delaware corporation, which made it vulnerable," Blackwell said. "It's a very intriguing set of facts that have brought us to this situation."