THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Tuesday, October 31, 1995 TAG: 9510310286
SECTION: LOCAL PAGE: B1 EDITION: FINAL
SOURCE: BY MARC DAVIS, STAFF WRITER
DATELINE: NORFOLK LENGTH: Medium: 76 lines
Joseph and Judy Houska, the Virginia Beach couple who filed for bankruptcy in 1991, then claimed $647,000 in personal belongings after their home burned down in 1992, were acquitted Monday of bankruptcy fraud.
The jury deliberated two hours before finding the Houskas not guilty of concealing assets from the Bankruptcy Court and of swearing to false statements.
The verdict was a setback for federal prosecutors in Norfolk, who recently began a concerted effort to crack down on bankruptcy fraud.
``If this was designed to be an example or a test case, then I think it failed miserably,'' said the Houskas' attorney, Andrew M. Sacks, after the verdict.
Joseph Houska, a 48-year-old builder who now lives in San Diego, agreed.
``I think they were trying to make some sort of example in the Bankruptcy Court, and I really agree this was not the case to show that,'' Houska said after the verdict. ``We really did not intend to commit a fraud.''
Prosecutor Alan Salsbury said he was disappointed but respected the jury's verdict. Otherwise, he had no comment.
The Houskas still face a separate civil lawsuit accusing them of padding their insurance claim and intentionally setting fire to their million-dollar waterfront home in Birdneck Point on Aug. 7, 1992. No arson charges were brought in the case.
Monday's verdict will not affect that lawsuit, which was filed last year in the same Norfolk federal court by the Houskas' two insurance companies. There is no trial date for that case.
The bankruptcy fraud trial lasted six days. In it, prosecutors argued that the Houskas hid hundreds of household belongings - mainly expensive antiques and antique reproductions - in vague bankruptcy schedules.
In Bankruptcy Court, the Houskas had claimed $13,390 worth of household belongings. They lumped these belonging together into broad categories such as ``Misc. Items'' or ``Garage full of misc. used furniture,'' often with little or no supporting detail.
A year later, after the fire, the Houskas filed an insurance claim for $647,350 worth of household belongings. They also claimed $1.24 million for the house itself.
In arguments Monday, prosecutors ticked off 15 items that were included in the insurance claim but not in the bankruptcy petition. These included a $9,440 antique reproduction chest, an $8,095 mahogany dresser and a $1,666 dressing stool from Judy Houska's closet.
``These two documents cannot be reconciled. They are like night and day,'' prosecutor Charles Rosenberg told the jury.
Fellow prosecutor Salsbury added, ``You would think you're looking at separate households and separate neighborhoods. They're not even close.''
But Sacks, the defense attorney, told the jury that there were ``understandable, explainable differences in these two documents.''
Several experts testified that in Bankruptcy Court, assets are routinely listed at ``yard-sale value'' and need not be listed item-by-item unless they are very valuable.
Other experts testified that in insurance claims, items are routinely listed at ``replacement value,'' or what they would cost to replace new, and must be listed in excruciating, item-by-item detail.
That can result in drastically different lists of items and values, as in the Houska case.
``A $400 chest . . . may cost $10,000 to replace,'' Sacks told the jury.
In his closing argument, Sacks emphasized that the Houskas only did what their lawyers told them to do. Even the experts, he said, don't agree on the proper way to fill out a bankruptcy petition.
``Bankruptcy practice is strange - strange to all of us,'' Sacks told the jury. ``There is no uniform practice in bankruptcy law. There is no one standard. . . . So which one is right?''
KEYWORDS: TRIAL BANKRUPTCY FRAUD VERDICT by CNB