SECURITIES AND EXCHANGE COMMISSION
LITIGATION RELEASE NO. 16974 /April 25, 2001
UNITED STATES OF AMERICA V. JOSE ZOLLINO AND GEORGE FAHEY. Criminal Action No. SA-01CR180
SECURITIES AND EXCHANGE COMMISSION V. INVERWORLD, INC. ET AL. Civil Action No. SA 99 CA 0822-FB
On March 22, 2001, Jose Zollino ("Zollino") and George Fahey ("Fahey"), were indicted by a San Antonio grand jury on 13 counts of conspiracy, fraud, and money laundering including violations of the anti-fraud provisions of the Securities Exchange Act of 1934 and the Investment Advisers Act of 1940. Zollino and Fahey were, respectively, the former chairman of the board and president of InverWorld Securities, Inc. ("InverWorld Securities"), a broker-dealer registered with the Commission, and InverWorld, Inc. ("InverWorld"), an investment adviser registered with the Commission (collectively "InverWorld Group").
The indictment charged that Zollino and Fahey defrauded InverWorld Group customers though false representations that:
Moreover, the indictment charges that Zollino and Fahey used customer funds to pay operating expenses, to pay off earlier customers, and to finance transactions designed to benefit Zollino and others, and that, in some instances, an undisclosed short selling strategy was used that further contributed to customer losses.
The indictment is based upon the same conduct alleged in the Commission's civil complaint against Zollino, Fahey, Inverworld Securities and InverWorld, filed August 4, 1999. The Commission alleged that since at least 1997, the defendants managed approximately $475 million on behalf of at least 1000 advisory clients in Mexico and Latin America. These investors sought low risk investments such as CDs, U.S. Treasury obligations, money markets and stocks traded on U.S. national exchanges. Instead, the defendants lost millions dollars of client funds in unauthorized, highly leveraged investments, the purchase of practically worthless securities issued by a related foreign shell company and other improper uses. Wire transfer records revealed that some $210 million was transferred offshore to Swiss and Bahamian bank accounts. InverWorld Securities, InverWorld, Zollino and Fahey were charged with violating the antifraud provisions of Section 17(a) of the Securities Act of 1933 (Securities Act) and Section 10(b) of the Securities and Exchange Act of 1934, and Rule 10b-5 thereunder, and InverWorld, Zollino and Fahey were also charged with violations of Section 206 of the Investment Advisers Act of 1940. In this civil fraud action, the court froze the assets of InverWorld Securities and InverWorld, and appointed a receiver over their assets. The civil action has been stayed pending the resolution of the criminal charges.