As the business world has learned, Franklin Raines and his associates played their accounting tricks, so much so that the SEC tells us that the earnings of Fannie Mae were overstated to the tune of $9 billion. And what is the reaction of the board of directors? They allowed him to retire! Several news accounts state that the board asked him to retire, but who cares about the nuances? They should have fired him then and there. Whether he actually committed a crime or "merely" exaggerated the accounting figures to the extreme, he worked to maximize his personal profits and did not advance the interests of shareholders. Under such circumstances boards of directors have to have the courage to fire the reprobates publicly.

We learn that Mr. Raines will exit Fannie Mae with almost $6 million in stock options and almost $9 million in deferred compensation. Further, it appears that he will receive a pension of about $1.4 million per year. Tim Howard, the defrocked CFO of Fannie Mae, has a similar golden parachute. Given that these pecuniary payments are partially a function of accounting earnings, one may easily conclude that in retrospect neither Mr. Raines nor Mr. Howard deserves these stock options, deferred compensation, and retirement checks.

If this were a chivalrous era, we might expect Franklin Raines (and Tim Howard) to pass on these personal gains. He might confess to the accounting misdeeds and express contrition over his sins. He might not go that far, but at least say the stench of these misdeeds precludes his acceptance of the money. But, this is not a period of chivalry and Mr. Raines is not a knight.

So we return to the board of directors. I presume that at this point the board does not have enough evidence to deem Raines guilty of fraud. If it did, it has been derelict in its duties. While it investigates the matter, it should put a hold on any payments to the former CEO. If courts find him guilty of any crimes related to these points, the board should terminate these payments and seek a way to recover past moneys spent on him. But, and here's the main point, even if the courts do not convict him of fraud or conspiracy or some such felony, we already know that he at least amplified the truth by $9 billion, a material amount in anybody's mind. The board of directors must sue him for his misdeeds and try to recover the misspent compensation.

Until the board of directors acts responsibly, what am I to tell my students? I cannot in good conscience tell them that crime does not pay. Clearly, many accounting embellishments are not caught, many of those that are discovered are not reported publicly, many of those that receive public disapprobations do not result in criminal convictions, and too many of those that do end in convictions still give the perpetrator a significant amount of money in the form of stock options, deferred compensation, and pensions. Accounting crime does pay.

One of the major ironies about Mr. Raines is that he is one of the executives who helped to set up an institute for corporate ethics at the University of Virginia. Should the university return this tainted money? Yes, but I'm sure they won't. Few university officials possess a conscience when it comes to contributions. Should we get excited upon the creation of such organizations to promote corporate ethics? Clearly not, since their major real purpose appears to be the assuaging of public censure. There is no intention of affecting and improving human behavior. Finally, should we suspect other contributors to this institute of committing their own accounting frauds? Hmm, now there's a hypothesis worthy of investigation.

J. EDWARD KETZ is accounting professor at The Pennsylvania State University. Dr. Ketz's teaching and research interests focus on financial accounting, accounting information systems, and accounting ethics. He is the author of Hidden Financial Risk, which explores the causes of recent accounting scandals, and columnist of The Accounting Cycle for SmartPros.com.