James Watkins, an ambitious 22-year-old, started anentertainment business called Best Club after he graduatedfrom California State University. Best Club initiallywas a business failure because James ignoredday-to-day operations and cost controls. One year later, James was heavily in debt. Despite his debt, Jamesdecided to open another location of Best Club. Hewas confident that Best Club would bring him financialsuccess. However, as his expenses increased, James could notmeet his debts. He turned to insurance fraud to save hisbusiness. He would stage a break-in at a Best Clublocation and then claim a loss. In addition, he reportedfictitious equipment to secure loans, falsified workorder contracts to secure loans, stole money ordersfor cash, and added zeros to customers’ bills whopaid with credit cards. James was living the "goodlife," with an expensive house and a new sports car. Two years later, James decided to make Best Club apublic corporation. He falsified financial statements togreatly improve the reported financial position of BestClub. In order to avoid the SEC’s scrutiny of his financialstatements, he merged Best Club with Red House, an inactive New York computer firm, and acquired RedHouse’s publicly owned shares in exchange for stock inthe newly formed corporation. The firm became knownas Red House, and the Best Club name was dropped. James personally received 79 percent of the shares. Hewas now worth $24 million on paper. James wascontinually raising money from new investors to payoff debts. A few months later, Red House’s stock was selling for $21 a share, and the company’s book valuewas $310 million. James was worth $190 million onpaper. A short time later, he met John Gagne, presidentof AM Firm, an advertising service. Gagne agreed toraise $100 million, via junk bonds, for Red House tobuy out Sun Society, a travel service. Afterward, with television appearances, James becamea "hot figure" and developed a reputation as anentrepreneurial genius. However, this reputation changedafter an investigative report was published in a majornewspaper. The report chronicled some of his earlycredit card frauds. Within two weeks, Red House’sstock 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 wereselling for just pennies. A company once supposedlyworth hundreds of millions of dollars dropped in valueto only $48,000.From this case, identify:a. The pressures, opportunities, and rationalizationsthat led James to commit his fraud. b. The signs that could signal a possible fraud. c. Controls or actions that could have detected James’sbehavior.