Conducted by the Institute for Fraud Prevention (IFP) -- a research coalition funded by the Association of Certified Fraud Examiners, The American Institute of Certified Public Accountants, Grant Thornton LLP, and D-Quest, Inc. -- the study examined 834 companies that filed financial restatements between 1997 and 2002.

The final report, "Control Overrides in Financial Statement Fraud," found that 374 (45 percent) were accused of securities fraud and subject to shareholder suits, enforcement action by the Securities and Exchange Commission or both.  In those cases, seven individuals on average were implicated. They occupied a variety of positions, including CEO, CFO, chief operating officer, general counsel, members of the board of directors, and internal and external auditors.

The study found that in cases of fraud, the board of directors often was driven by senior management and the CEO also served as chairman.

"Far from being a solitary act, securities fraud necessarily requires complicity," said Dr. William Black, executive director of IFP. "In situations where the CEO is chair of the board of directors, a body that is supposed to oversee management, independence can be compromised. When independence falls by the wayside, fraud is the consequence."

By way of example, Black noted that, according to the study, more than a third (39 percent) of the companies accused of fraud were so-called New Economy industries, including dot-coms, energy traders and telecommunications.

"When the dot-com fever hit its peak, there was a loss of perspective as people saw the possibility of making a lot of money very quickly," he said. "We saw what former Federal Reserve Chairman Alan Greenspan called 'irrational exuberance.' Good business practices were ignored under the pressure to meet earnings forecasts."

High-profile corporate fraud led to the 2002 enactment of the Sarbanes-Oxley Act, which imposed stringent requirements on management, boards and external auditors to provide assurance on internal controls.

"It is highly unlikely that fraud will ever be eliminated," Black said. "But there are safeguards that can be put into place to help better detect and prevent it. Although it will be some time before we are able to analyze the true effectiveness of Sarbanes-Oxley, the law is meant as a wakeup call to Corporate America that it [has] to do a better job."

The authors of the study, Robert Tillman and Michael Indergaard of St. John's University, based their analysis on a sample collected by the General Accountability Office.

The study may be found at www.TheIFP.org, under the Research Grants heading.