Chapter 16

13. True or false: In a "bust-out," fraud perpetrators plan to retain a business' assets while filing for bankruptcy in order to avoid responsibility for company liabilities. a. True b. False

A

14. Which of the following best describes a "Bust-out" in regard to bankruptcies? a. A planned bankruptcy b. Jailbreak planned by fraud perpetrators c. Skipping out on bail d. Fraud prevention program for convicted fraudsters

A

15. Which of the following statements correctly depicts duties of court appointed trustees? a. Trustees identify and collect a debtor's assets and then allocate those assets to creditors in an orderly manner. b. Trustees review fee applications, motions to appoint trustees and examiners, motions to convert or dismiss a case, and other pleadings. c. Trustees investigate criminal complaince in bankruptcy cases. d. Trustees testify in bankruptcy cases.

A

43. Criminal bankruptcy fraud cases are generally prosecuted by the: a. U.S. Attorney's office b. FBI c. CIA d. District Attorney's office

A

46. Which of the following is one of the Court-Appointed or Panel Trustee's duties or characteristics? a. Investigate the acts, conduct, liabilities, assets, and financial condition of the debtor, the operation of the debtor's business and the desirability of the continuance of that business. b. Approve reorganization plans c. Administering bankruptcy cases and reviewing employees and fee applications. d. Holds a valid claim against a debtor.

A

50. Which of the following is a possible indicator of concealment in a bankruptcy or divorce fraud? a. Increases in operating losses that are not explained by economic factors b. The size of orders placed on credit and the credit balances with suppliers suddenly and dramatically decrease c. A sudden change in management is made without public notice d. The company sells goods at large discounts

A

57. The best description of a fraudulent transfer in a bankruptcy setting is: a. A transfer of assets made with the intent of placing them outside the reach of a bankruptcy court b. A transfer of cash in exchange for supplies or other business assets c. A transfer of assets made to another institution before a bankruptcy is filed d. A transfer to a fund or other account to hold assets for a period of time

A

6. Section 548 of the Bankruptcy Code defines as fraudulent certain transfers made, or obligations incurred, within what specified time period? a. 12 months b. 9 months c. 6 months d. 3 months e. 1month

A

61. Which of the following has a lower fine dollar amount limit than the others? a. willful failure to file return, supply information, or pay taxes b. willful failure to collect or pay tax c. attempt to evade or defeat tax d. attempt to interfere in the administration of Internal Revenue laws

A

7. Most divorce fraud cases are: a. Civil cases. b. Criminal cases. c. Protected by Chapter 7. d. Rarely investigated through surveillance.

A

8. When fraud examiners investigate a bankruptcy or divorce resulting from fraud, where do they focus? a. Activity shortly before the bankruptcy filing or divorce b. Activity after the bankruptcy filing or divorce c. Activity several years prior to the bankruptcy filing or divorce d. Activity throughout the individual's entire life

A

Which of the following describes the result of a Chapter 7 filing? a. "a complete liquidation or shutting down of the business" b. "courts give debtor time to reorganize" c. "2 years probation and/or up to 300 hours community service" d. "Debtors make regular payments for a number of years"

A

19. Which of the following best explains why pressure to commit fraud exists in bankruptcy and divorce cases? a. Fraudsters don't have accurate records. b. Assets are taken away from one party and given to others. c. The perpetrators doe not feel that a fraud investigator will find them out. d. There is anger aimed at the other parties involved.

B

29. According to government statistics, which of the following estimates the losses to creditors from bust-outs? a. $100,000/day b. $50 billion/year c. $1 million/ year d. $10,000/day

B

3. When a bankrupt company's only listed address and phone number is a post office box and an answering service, we may see this as a flag of what type of fraud? a. Illegal concealment of assets b. Planned bankruptcy fraud c. Fraudulent transfers d. None of the above

B

30. An examiner investigates and reports the results of a bankruptcy fraud investigation to the court. Which of the following is NOT included in his or her duties unless he or she is court appointed? a. Operate a business b. Subpoena records c. Make business decisions d. Propose reorganization plans e. An examiner is not allowed to perform any of the above

B

33. Under which of the following conditions can bankruptcy and divorce parties potentially sue fraud investigators? a. The fraud investigator makes a statement supported by fact b. The fraud investigator makes a statement based on opinion c. The fraud investigator makes a statement about the opposing side d. The fraud investigator makes a statement about the court process

B

34. Which of the following is the strongest indication of a bust-out? a. The company has one permanent residential street address. b. Management suddenly changes without public notice. c. Inventory suddenly and dramatically increases. d. One of the credit references is an out-of-town bank.

B

39. Which of the following courts has jurisdiction to oversee the receipt of bankruptcy petitions? a. U.S. Tax Court b. U.S. District Court c. U.S. Supreme Court d. Bankruptcy Court

B

4. The Office of U.S. Trustee is an agency in which of the following departments? a. Homeland Defense b. Department of Justice c. Department of the Treasury d. Department of Agriculture

B

42. Which of the following is true concerning a Chapter 11 bankruptcy? a. Constitutes a complete shutdown of the organization b. Requires the entity to reorganize to pay creditors c. Is available only to persons d. Requires debtors to repay creditors over a specified period

B

44. Bankruptcy fraud makes it a crime to do any of the following to execute or conceal a fraud scheme except: a. File a bankruptcy petition b. Make a false account in a bankruptcy case c. File a document in a bankruptcy proceeding d. Make a false or fraudulent representation, claim, or promise with respect to a bankruptcy proceeding, either before or after the bankruptcy petition is filed.

B

45. Which bankruptcy participant administers a bankruptcy estate? a. Examiner b. Trustee c. Adjuster d. Creditor

B

47. Which title of the U.S. Code governs the bankruptcy process? a. Title 9 b. Title 11 c. Title 13 d. Title 7

B

48. Which of the following actions is NOT prohibited for a trustee or other official overseeing bankruptcy proceedings? a. Refusing to permit inspection of documents of the estate in the person's charge b. Refusing to sell assets in the person's charge c. Purchasing, indirectly, any property of the debtor's estate d. Purchasing, directly, any property of the debtor's estate

B

5. The Office of U.S. Trustee is responsible for all but which of the following functions? a. Administering bankruptcy cases b. Officiating in court on matters of interest to the debtor's estate and creditors c. Overseeing and monitoring trustees d. Reviewing employees and fee applications e. The Office of U.S. Trustee is responsible for all of the above functions

B

51. Which of the following is always involved in planned bankruptcies? a. Setting up a new company whose purpose is to help the perpetrator carry out the scheme b. Purchasing inventory in increasing amounts on credit c. Planning a bankruptcy with the creditors before a loan is made d. The perpetrator skipping town when the bankruptcy is filed

B

60. Which of the following is NOT a part of the mission of the IRS's Criminal Investigation Division? a. to investigate potential criminal violation of the Internal Revenue Code b. to investigate potential financial statement fraud related to revenue & expenses c. to investigate in a manner that fosters confidence in the system d. to investigate in a manner that fosters compliance with the law

B

62. Which of the following is NOT involved in money laundering? a. engaging in financial transactions to conceal the source of the funds involved b. engaging in financial transactions to conceal the amount of the funds involved c. engaging in financial transactions to conceal the identity of the funds involved d. engaging in financial transactions to conceal the destination of the funds involved

B

64. Which of the following is usually the most complex step in the money laundering process? a. integration b. layering c. placement d. transfering

B

Which is NOT something that a fraud perpetrator conducting a bust-out is likely to do? a. Work to establish credibility b. Contact law enforcement to strengthen their cover c. Quietly buy an existing company that already has established credit or business d. Take on a business name similar to a well-reputed company e. A fraud perpetrator conducting a bust-out is likely to do all of the above

B

17. Which type of bankruptcy is a reorganization that can be used by individuals who meet certain requirements, such as having regular income and debts of $1 million or less? a. Chapter 3 b. Chapter 5 c. Chapter 7 d. Chapter 11 e. Chapter 13

E

25. If reorganization does not work under Chapter 11 bankruptcy, judges may order which form of bankruptcy? a. Chapter 5 b. Chapter 9 c. Chapter 10 d. Chapter 13 e. None of the above

E

40. Which of the following is true of bankruptcy/divorce fraud? a. It involves only criminal proceedings b. It is growing at an alarming rate c. The main motivation is to keep assets from being taken d. Both a and c e. Both b and c f. All of the above

E

55. All of the following are examples of ways to conceal assets in a bankruptcy or divorce fraud except which one? a. Not reporting sales on the debtor's books but dispersing them to another entity b. Damaging or hiding the books and records of the debtor c. Dispersing cash received from receivables to third party d. Not disclosing interests held in other partnerships, corporations, or other assets e. All of the above are ways to conceal assets

E

53. Which of the following is the best description for the purpose of an estate created for divorce or bankruptcy? a. To pay for the all of the legal fees in filing a chapter 7, 11, or 13 bankruptcy or to pay the legal fees of a divorce b. To protect the assets of the party filing bankruptcy so that no further losses are realized c. To settle the debts of the debtor or divorce partner of which the Bankruptcy or Divorce Court has control d. To hold only the physical assets of the divorce partner or debtor for the period of the bankruptcy or divorce

C

56. Which of the following is NOT listed as a duty of the trustee in a Chapter 7 bankruptcy? a. Furnish information about the estate and its administration b. Ensure that the debtor files the statement of intention to retain or surrender property c. After confirmation of a plan, file such reports as are necessary or as the court orders d. Oppose the discharge of the debtor when appropriate

C

63. Which of the following is often the riskiest step in the money laundering process? a. integration b. layering c. placement d. transferring

C

10. The Bankruptcy Fraud section of the Bankruptcy Code, as it relates to criminal fraud, makes it a crime to do which of the following in executing or concealing a fraud scheme? a. File a bankruptcy petition b. File a document in a bankruptcy proceeding c. Make a false or fraudulent representation, claim, or promise with respect to a bankruptcy proceeding d. All of the above

D

11. Which of the following statements correctly describes the part of an adjuster in divorce cases? a. Investigates allegations of fraud or misconduct by the debtor or its principals as an advocate of the other party b. Investigates for instances of hiding assets in a chapter 11 filing c. Investigates claims against a debtor to determine whether or not they are valid d. Assists the trustee by performing such duties as securing business facilities and assets, locating assets of the debtors estate and arranging asset sales

D

16. Which is the type of bankruptcy that allows large companies to reorganize themselves and pay off debt in the future? a. Chapter 3 b. Chapter 5 c. Chapter 7 d. Chapter 11 e. Chapter 13

D

22. Which of the following is not true regarding bankruptcy and divorce frauds? a. Bankruptcy or divorce is used to justify the fraud. b. Bankruptcy or divorce is used to perpetuate the fraud. c. Bankruptcy or divorce is used to conceal fraud. d. Bankruptcy or divorce is used to cash out of the fraud.

D

23. Which of the following options is true concerning the concealment of assets during or in contemplation of a bankruptcy? a. Often used in divorce cases b. Often used in a planned bankruptcy c. How a bust-out is designed d. All of the above

D

24. Which of the following may indicate concealment of assets during a bankruptcy? a. Large transfers of assets to related parties or individuals b. Rapid reduction in assets c. Missing, inaccurate, or damaged documents d. All of the above

D

31. Which of the following is NOT a duty of the court-appointed trustee in a chapter 11 case? a. Investigate the acts, assets, liabilities, and financial condition of the debtor b. Examine proofs of claims c. Collect and liquidate the property of the debtor's estate d. All of the above are duties of a court-appointed trustee

D

35. Which of the following is NOT a purpose of bankruptcy? a. Give debtors relief from the creditors. b. Protect debtors from unfair collection efforts by other creditors. c. Give debtors relief from foreclosure activities. d. Gives the debtor the ability to safeguard their most important assets. e. All of the above are purposes of bankruptcy

D

36. Which of the following is NOT and indicator of possible asset or income concealment? a. Missing, inaccurate, or damaged records b. Travel to off-shore tax havens or locations that allow secret bank accounts c. Transactions frequently made in cash but normally made on account d. Unusual increases in reported assets e. All of the above are indicators of possible asset or income concealment

D

37. Which of the following is NOT a participant in the bankruptcy process? a. U.S. Trustee b. Bankruptcy court c. Creditors d. All of the above are participants in the bankruptcy process

D

38. Entering false financial information on bankruptcy petitions and schedules occurs in approximately what perscent of bankruptcy cases? a. 10 percent b. 30 percent c. 50 percent d. 70 percent

D

54. Which of the following is listed as a possible indicator of a "bust-out"? a. Transactions are frequently made on account but are normally made in cash b. The company decreases its credit purchases c. Records are missing, inaccurate, or damaged d. Credit references cannot be verified

D

58. Which of the following is NOT an option for the IRS tax compliance auditor when it is determined that taxes were underpaid? a. Civil fines can be assessed. b. Penalties can be levied. c. The case can be referred to the IRS's Criminal Investigation Division. d. Charges can be pressed in the courts.

D

59. What is the penalty for tax fraud? a. It is 20% of the tax bill. b. It is 25% of the tax bill. c. It is 50% of the tax bill. d. It is 75% of the tax bill.

D

65. Which of the following organizations sets the international standards for combating money laundering? a. The United Nations Monetary Fund Task Force b. The International Monetary Fund Task Force c. The World Bank Action Task Force d. The Financial Action Task Force

D

66. Which of the following is a requirement to work as an entry-level Criminal Investigation special agent for the IRS? a. completion of at least two years of college b. completion of at least 9 semester hours in accounting at the college level c. completion of at least 15 semester hours of college level courses in finance, economics, business law, ta law or money & banking. d. be thirty-seven years of age or younger

D

All bankruptcy petitions are subject to: a. Federal claims court jurisdiction b. U.S. Tax court jurisdiction c. Supreme court jurisdiction d. U.S. district court jurisdiction

D

9. Fraud is common in: a. Divorces b. Bankruptcies c. Both a and b d. Neither a nor b

c

12. Who holds a valid claim against someone filing a chapter 11 bankruptcy? a. Examiner b. Debtor c. Creditor d. Adjuster

C

18. What is generally indicated in a divorce or bankruptcy when books and records of the debtor/marital partner have been destroyed or are hard to locate, it generally means: a. Fraud has caused the bankruptcy or divorce b. The bankruptcy or divorce is used to perpetrate the fraud c. The bankruptcy or divorce is used to conceal the fraud d. None of the above

C

20. Jim Salazar is the majority shareholder of XYZ Co. XYZ Co. filed for Chapter 11 Bankruptcy on January 1, 2008. Which of the following may be considered a fraudulent transfer? a. Transfer of land to Jim's sister Alice on July 1, 2006. b. Sale of inventory at regular price to a new customer on February 15, 2008. c. Transfer of fixed assets to Jim's brother John on December 15, 2007. d. Transfer of inventory to a subsidiary for less than fair value on August 1, 2006. e. Both a and c are correct.

C

21. Which of the following is NOT a duty/function that bankruptcy judges perform? a. Approve reorganization plans b. Conduct hearings and trials to resolve disputes c. Appoint fraud examination firms to conduct audits d. Award professional fees e. Bankruptcy judges perform all of the above functions

C

26. Karl Mathers set up a new company and obtained loans to buy inventory with the intention of filing for bankruptcy after 2 years and selling the inventory later to a close friend at deep discounts. What is the term for this type of bankruptcy fraud? a. Commercial loan fraud b. Inventory dumping fraud c. Bust-out d. None of the above

C

27. The Concealment of Assets, False Oaths and Claims, and Bribery section of the USC makes it a crime to "knowingly and fraudulently" do all of the following EXCEPT: a. Receive property from the debtor after bankruptcy is filed b. Conceal records or property c. Transfer property to the debtor d. Make a false statement

C

32. Which of the following statements about hiring accounting or fraud professionals in bankruptcy proceedings is NOT correct? a. If the trustee wants to employ attorneys, accountants, or other professionals to represent or assist the trustee, the trustee has to get the court's approval. b. All the professionals must be employed under Code section 327. c. The retention of a fraud examiner or investigator in a bankruptcy proceeding is up to the discretion of the trustee. d. A creditor may engage the services of a professional to investigate allegations of bankruptcy fraud independently from the court. In this case, the creditor usually compensates the professional directly.

C

41. Bankruptcy and divorce can be which of the following categories? a. Criminal matters b. Civil matters c. Either of the above d. Neither of the above

C

49. Which of the following statements is true concerning divorce cases? a. Bankruptcy laws and statutes are much simpler than divorce laws and statutes b. Divorce fraud never involves hiding or transferring assets c. Most divorce cases are civil cases, with no criminal charges filed d. It is illegal for divorce attorneys to hire investigators to help them find hidden assets

C

52. Which of the following is NOT an element of a fraudulent transfer that is made for less than a reasonably equivalent value? a. The debtor knew the debts could not be repaid at maturity b. The debtor becomes insolvent as a result of the transfer c. The debtor misstates the value of the transfer on the books d. The debtor's capital remaining after the transfer is unreasonably small

C