Stockbroker, Mark Hotton, defrauded the producers of a Broadway production of “Rebecca,” through the combination of a fictitious loan and phantom investors, conjured up as part of a sham plan to rescue the financially ailing show.

Questions:
1. How was the complex fraud described by federal authorities?
2. How could the producers have been proactive in avoiding the fraud? In other words, discuss what internal controls would have prevented this situation.
3. If Mr. Hotton had somehow managed to get the $4.5 million that he said he would raise or perhaps convinced the principals that the money would arrive, what amount of fee would he have earned (based on the agreement that Mr. Sprecher signed with Mr. Hotton)? How would the production have recorded this transaction in a journal entry, if it had been legitimate? Where would this amount be recorded in the financial statements?
4. What schemes had Mr. Hotton used previous to this Rebecca fraud to obtain ill-gotten gains?

Source:

Video. (2012). An Audacious Fraud. The New York Times, Oct. 17 (Retrievable online at http://nyti.ms/RTAK8Q)

Rashbaum, W.K. and P. Healy. (2012). Middleman in Financing of ‘Rebecca’ Is Arrested on Federal Fraud Charges. The New York Times, Oct. 16 (Retrievable online at http://www.nytimes.com/2012/10/16/nyregion/feds-arrest-middle-man-financier-for-rebecca-show.html?_r=0)