Dear Tutors,

Please help me with the Keystone case study for fraud examination below. Kindly explain the item#1 to #5 and help me understand this question - see my notes. Thank you!

Assume the following facts:

1.Keystone is defunct (non-operation), has zero assets, and has two liabilities remaining on its balance sheet:

a.Unsecured pension liability = $5 million

What can be unsecured pension liability? This is not secure, can we write it off? Can I this be a fraud?

b.Secured loan to an owner named Mr. Javlin = $10,000,000

Why the loan secured to an owner's name instead of the company name? Is this to avoid high interest rate as a company? What fraud can this be?

2.Assume that Keystone has two owners: Mr. Javlin (67%) and Mr. Linton (33%)

3.Assume that during the period 20X2 through 20X8, companies owned by Mr. Javlin were paid $32,000,000 by Keystone. Sword Ridge, Sword River, Rock River, Rock Rider, Cobra Coal, Rock Walker, Arctic Resources, Cinnamon Resources.

4.Assume that during the period 20X2 through 20X8, companies owned by Mr. Linton were paid $16,000,000 by Keystone. Company names included Atlantic Supply, Keystone Land & Coal, First Management, Sundance.

I noticed the payments to their companies were not legitimate, what fraudulent is this? What are the principals of keystone avoiding by making these fraudulent distributions? Please explain.

5.After one year of litigation discovery, no evidence was provided by Keystone, Javlin, or Linton to substantiate the business purposes for these payments by Keystone.

I guess they have no proof of these payments. What fraud can this cause?

6.Neither Mr. Javlin nor Mr. Linton drew a salary during the period 20X2-20X8.