THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Tuesday, October 24, 1995 TAG: 9510240296
SECTION: LOCAL PAGE: B3 EDITION: FINAL
SOURCE: BY MARC DAVIS, STAFF WRITER
DATELINE: NORFOLK LENGTH: Medium: 77 lines
The government accused Joseph and Judy Houska on Monday of defrauding creditors and the court by hiding assets worth hundreds of thousands of dollars, including art, antiques and jewelry, when they filed for personal bankruptcy in 1991.
In Bankruptcy Court, the Houskas claimed to own just $9,440 worth of household goods and furnishings, prosecutor Alan Salsbury told a federal jury.
But later, after their million-dollar house burned down in Virginia Beach's Birdneck Point neighborhood in 1992, the Houskas filed an insurance claim for $647,350 worth of household goods, not including the house itself, Salsbury said.
The insurance claim included such pricey items as a $3,000 pearl necklace, two mink fur hats worth $3,000, two pairs of Lauren alligator shoes worth $1,200, and a collection of designer neckties worth $4,827. None of these was included in the bankruptcy inventory.
``It's a case about deception and fraud,'' Salsbury told the jury on opening day of the Houskas' criminal trial in U.S. District Court.
The Houskas, both 48 and now living in San Diego, are each charged with two counts of bankruptcy fraud. If convicted, each faces up to five years in prison and a $250,000 fine on each count.
``The defendants deliberately concealed their property to cheat the bankruptcy trustee and their creditors. . . ,'' Salsbury argued. ``Literally hundreds of items of personal property, some of them very valuable, including art objects, antiques and jewelry'' were left off the bankruptcy filing.
That is important, Salsbury told the jury, because many assets belonging to debtors in Chapter 7 bankruptcies are sold to pay back creditors.
``It would have been impossible for the defendants to have forgotten'' all these expensive home furnishings in Bankruptcy Court, Salsbury argued, because the Houskas had personally walked through their house to inventory their possessions room by room.
But the Houskas' attorney, Andrew M. Sacks, argued that Joseph Houska, a builder, and his wife simply followed the instructions of their bankruptcy attorneys.
``The honest actions of these two individuals have been misconstrued,'' Sacks told the jury. If anything, Sacks said, the Houskas took ``extraordinary steps'' to list their personal property, ``doing what nobody does in bankruptcy filings.''
It is misleading, Sacks argued, to compare the bankruptcy and insurance papers because each required a different level of detail. That is why, Sacks said, hundreds of items appear on the insurance claim but not in the bankruptcy filing.
In bankruptcy papers, Sacks argued, the Houskas lumped many items together under general headings like ``other personal property of any kind not already listed.'' That was valued at $625. These items are listed in greater detail in the insurance claim, Sacks said.
It is also unfair to compare the valuation of items in the bankruptcy and insurance papers, Sacks said, because each was assessed differently for different purposes.
In bankruptcy, Sacks told the jury, items are assessed at ``yard-sale values.'' For insurance purposes, the same items are valued at their replacement costs.
Thus, Sacks said, framed oil portraits of Joseph and Judy Houska - valued at $3,500 and $4,000 for insurance purposes - were nearly worthless for bankruptcy purposes, Sacks said, because no one would buy them at a yard sale. Also, Sacks said, clothing that would be expensive to replace would be worth much less at a yard sale.
Sacks argued that no debtor ever files bankruptcy petitions in the kind of detail that prosecutors required of the Houskas. Out of the jury's presence, he told Judge John A. MacKenzie, ``This case is almost pure fiction. It's a new standard in bankruptcy law.''
Prosecutors expect to finish their case today. The defense's case is expected to last two or three days.
KEYWORDS: BANKRUPTCY TRIAL FRAUD by CNB