subject
Business, 28.08.2019 00:30 JojoSiwa901

James watkins, an ambitious 22-year-old, started an
entertainment business called best club after he graduated
from california state university. best club initially
was a business failure because james ignored
day-to-day operations and cost controls. one year later,
james was heavily in debt. despite his debt, james
decided to open another location of best club. he
was confident that best club would bring him financial
success.
however, as his expenses increased, james could not
meet his debts. he turned to insurance fraud to save his
business. he would stage a break-in at a best club
location and then claim a loss. in addition, he reported
fictitious equipment to secure loans, falsified work
order contracts to secure loans, stole money orders
for cash, and added zeros to customers’ bills who
paid with credit cards. james was living the "good
life," with an expensive house and a new sports car.
two years later, james decided to make best club a
public corporation. he falsified financial statements to
greatly improve the reported financial position of best
club. in order to avoid the sec’s scrutiny of his financial
statements, he merged best club with red house,
an inactive new york computer firm, and acquired red
house’s publicly owned shares in exchange for stock in
the newly formed corporation. the firm became known
as red house, and the best club name was dropped.
james personally received 79 percent of the shares. he
was now worth $24 million on paper. james was
continually raising money from new investors to pay
off debts. a few months later, red house’s stock was selling for $21 a share, and the company’s book value
was $310 million. james was worth $190 million on
paper. a short time later, he met john gagne, president
of am firm, an advertising service. gagne agreed to
raise $100 million, via junk bonds, for red house to
buy out sun society, a travel service.
afterward, with television appearances, james became
a "hot figure" and developed a reputation as an
entrepreneurial genius. however, this reputation changed
after an investigative report was published in a major
newspaper. the report chronicled some of his early
credit card frauds. within two weeks, red house’s
stock plummeted from $21 to $5.
after an investigation, james was charged with insurance,
bank, stock, and mail fraud; money laundering;
and tax evasion; and red house’s shares were
selling for just pennies. a company once supposedly
worth hundreds of millions of dollars dropped in value
to only $48,000.
questions
from this case, identify:
1. the pressures, opportunities, and rationalizations
that led james to commit his fraud.
2. the signs that could signal a possible fraud.
3. controls or actions that could have detected james’s
behavior.

ansver
Answers: 2

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James watkins, an ambitious 22-year-old, started an
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