Fortune Ltd was a struggling publicly listed mining company that over recent years had amassed huge debts, not reported a profit, and been in a negative cash flow situation. This was until it announced to the world that it had recently acquired the mining rights to what it claimed has turned out to be one of the "largest gold deposits ever discovered".

Within a few weeks, many investors, including big-time investors, small "mum and dad" investors, and factory workers, got caught up in "Fortune fever". The company's share price rose from a few cents to more than $100 per share. These investors believed they were on the verge of becoming millionaires.

However, when the company's chief geologist suddenly disappeared, things drastically changed for the worse. The geologist was the only person who knew the true gold content of the mining samples taken from the mines. The disappearance was reported shortly after an audit of the samples was carried out by an independent geological consulting firm. The firm reported that there was evidence that the samples had been tampered with. They had been made to appear rich in gold by mixing in extra gold dust. In sum, the firm declared that Fortune Ltd was a massive fraud.

Soon after the fraud was exposed, initially no-one could be sure who was responsible for tampering with the samples. While many blamed the geologist, others also blamed senior company executives and personnel, including the company directors. The company's president was shocked at the news of the tampering and ordered an immediate investigation. However, allegations surfaced that, a few years before this tampering was exposed, he and his chief executive officer (CEO) had mislead shareholders and investors on another matter. It was also revealed that they both had made profits of over $100 million from the selling of their shares just before the disappearance of the geologist. Also revealed was that they had a history of alleged unethical behaviour at previous mining companies, and were leading very lavish lifestyles. In the end, many people lost huge amounts of money as news of one of "largest gold deposits ever discovered" ended being an enormous fraud.

Answer all questions below.

1.

a. In what ways would investigating the President and senior management, who are heavily involved in corporate governance, have helped determine the value of Fortune Ltd.'s gold prospects?

b. In what ways would investigating the financial results and operating characteristics have helped determine the value of Fortune Ltd.'s gold prospects?

2. There are six elements of the "perfect fraud storm", e.g., "Greed". Discuss any THREE "perfect fraud storm" elements that were present in this case.

3. What were some of the President's and CEO's motivations to commit fraud?