ase $2$: From Best Club to Red HouseJames Watkins$/$John Gagnes$/$insurance & financial fraud$($Ch$2-$Case$2-1/4)$James Watkins, an ambitious $22-$year$-$old college graduate, started the Best Club Entertainment but failed to cost control and daily operation with growing debts.He committed an insurance fraud by staged a break$-$in his club and claiming losses. He obtained loans by fictious equipment and falsified work order contracts, stealing money orders for cash, and falsifying from customer credit card bills. He lives a the good life with expensive house and a new sport car.He falsified Best Clubs financial statements and reverse merged with an inactive NY$-$based public computer firm Red House to avoid the scrutiny of SEC. Best Club name was dropped.James received $79\%$ of shares of now Red House and worthy $$24$ million on paper. Raising money from new investors to pay off debts. Shortly, Red Houses stock was selling $$21/$share and book value of $$310$ million. Up his worth to $$190$ million on paper. John Gagnes, president of AM advertising service firm agreed to raise $$100$ million via junk bonds to buy out Sun Society, a travel service company.A major newspaper revealed his early credit fraud and the hot figure entrepreneurial genius was charged with insurance, bank, stock, and mail fraud, money laundering and tax evasion. Red house stock plummeted from high $$21$ to $$5$ to just pennies. Company value from millions to merely $$48,000.$ Case $2$: From Best Club to Red HouseJames Watkins$/$John Gagnes$/$insurance & financial fraud$($Ch$2-$Case$2-2$