The Journal of Accountancy (yes, there really is such a publication) had an article about the Securities and Exchange Commission (SEC) bringing and enforcing fraud cases over the last decade. The largest cases involved either improper financial reporting or violations of the Foreign Corrupt Practice Act which deals with bribes to international officials. Not surprisingly the financial services industry had, by far, the most cases and fines followed by natural resource and energy firms (think mining and oil and gas).
But what was very surprising, and more than a bit disturbing to me, was who the SEC prosecuted and fined. Corporations themselves were at the top of the list which made sense. But, what did not, was that Chief Financial Officers (CFOs) were second followed by a firm’s Chief Executive Officer (CEOs) as a far distant third. Worst of all was that the Board of Directors were barely fined at all! Now, I know I was a practicing (and never indicted CFO) and I know CFOs certainly play a major role in a fraud of any kind. But, let me tell you this: nine times out of ten when a CFO does something bad, his or her CEO not only knows about it but probably pressured the CFO to cook the books in the first place! I could understand if CFOs were fined a bit more than CEOs, but not ten times as much in this study. CEOs are always responsible and often behind what goes on, period.
And, the Directors in these firms should have know something was going on! I have written on several occasions about the often limited involvement or usefulness of many members of Boards of Directors. But remember the corporate officers from the CEO to the CFO all report to and are responsible to the Board. The buck, and on average, $250,000 per year of bucks for large company directors, stops with the Board.
As many readers know, I hate fraud and especially fraud committed by senior managers who are paid a lot of money. So I am all for prosecuting and fining those who commit fraud. But if the SEC and the U.S. Government focus the bulk of their efforts on CFOs and almost ignore CEOs and their Boards, the occurrence and magnitude of fraud will only continue and probably get worse.
Think of this like a National League Football team. When a team, like my Cleveland Browns go winless, they fire the coach. When the team only wins a few games in several years, you fire the General Manager, the Director of Player Personnel and everyone but the Owners. So, in corporate terms, when major fraud occurs, fire the Board. This is how you send a message and how things might have a chance to improve in the future.
bradszootales 
You’re right on with this one. It should be a rare exception where the Board or CEO isn’t aware of these types of misdeeds. If they were not aware then they weren’t doing their jobs and should be FIRED!
When the Peregrine accounting scandal hit in mid-2002, the CFO, CEO, and sales people were fined and went to jail. But John Moores, who was on Peregrine ‘s board of directors for the 20 years prior to the scandal, wasn’t charged in the case. John Moores made $500 million dollars by selling Peregrine stock. He didn’t know about the sweet deals, but somehow he knew when to sell the stock.
The CEO, who made $8 million on the stock, had pressured the CFO to cook the books, and the CFO had died of a heart attack a year before the scandal hit. After that, the CEO outfitted every floor of the building with a defibrillator. The CEO died of a heart attack in prison. No defibrillators in prison.
What you noted regarding the board is pretty much what transpired, The courts agreed that the board was not aware of the everyday business.
As stressful as being a CFO had to have been for you, you were honest and did not have the guilt or the heart attack. Your sterling intentions and actions restored USG to solvency. You did good, and good came of it.
Here’s to another year of your thoughtful posts. Many thanks.