Accounting Forum 31 (2007) 203215

An American Dream theory of

corporate executive Fraud
Freddie Choo a, , Kim Tan b
a

Department of Accounting, College of Business, San Francisco State University, 1600 Holloway Avenue,
San Francisco, CA 94132, United States
b Department of Accounting & Finance, College of Business, California State University Stanislaus,
801 Monte Vista Avenue, Turlock, CA 95382, United States
Received 11 August 2006; accepted 15 December 2006

Abstract
In this paper, we first describe a Broken Trust theory that was introduced by Albrecht el al. [Albrecht,
W. S., Albrecht, C. C., & Albrecht, C. O. (2004). Fraud and corporate executives: Agency, Stewardship
and Broken Trust. Journal of Forensic Accounting, 5, 109130] to explain corporate executive Fraud. The
Broken Trust theory is primarily based on an Agency theory from economic literature and a Stewardship
theory from psychology literature. We next describe an American Dream theory from sociology literature
to complement Albrecht el al.s (2004) Broken Trust theory. Like the Broken Trust theory, the American
Dream theory relates to a Fraud Triangle concept to explain corporate executive Fraud. Finally, we provide
some anecdotal evidence from recent high profile corporate executive Fraud to explore the American Dream
theory. We conclude our thoughts on corporate executive Fraud from a teaching perspective.
2007 Elsevier Ltd. All rights reserved.
Keywords: Corporate executive Fraud; American Dream theory; Broken Trust theory

1. Introduction
In this paper, we first describe a Broken Trust theory that was introduced by Albrecht,
Albrecht, and Albrecht (2004) to explain corporate executive Fraud. The Broken Trust theory is
primarily based on an Agency theory from economic literature and a Stewardship theory from
psychology literature. We next describe an American Dream theory from sociology literature
to complement Albrecht et al. (2004) Broken Trust theory. Like the Broken Trust theory, the

Corresponding author.
E-mail addresses: fchoo@sfsu.edu (F. Choo), KTan@csustan.edu (K. Tan).

0155-9982/$ see front matter 2007 Elsevier Ltd. All rights reserved.
doi:10.1016/j.accfor.2006.12.004

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American Dream theory relates to a Fraud Triangle concept to explain corporate executive
Fraud. We are motivated to explain corporate executive Fraud because whenever corporate Fraud
has been studied, CEOs and CFOs are most involved. For example, the COSO-sponsored study
by Beasley, Carcello, and Hermanson (1999) found that CEOs were involved in 72 percent of
the financial statement Fraud cases. The next most frequent perpetrators in descending order of
frequency were the controller, COO, vice presidents, and members of the board.
We define corporate executive Fraud as follows. First, a corporate scandal is a scandal
involving allegations of unethical behavior on the part of a company. It follows that a corporate
accounting scandal is a scandal involving unethical behavior in accounting, that is, accounting Fraud. Accounting Fraud includes intentional financial misrepresentations (e.g., falsification
of accounts) and misappropriations of assets (e.g., theft of inventory) (AICPA, 2002). Intentional financial misrepresentations involving the management of a company are referred to as
corporate executive Fraud, whereas misappropriations of assets involving the employee of a company are referred to as employee Fraud. Taken together, corporate executive Fraud is intentional
financial misrepresentations by trusted executives of public companies, which typically involve
creative methods for misusing or misdirecting funds, overstating revenues, understating expenses,
overstating the value of corporate assets, or underreporting the existence of liabilities.
Finally, we provide some anecdotal evidence from recent high profile corporate executive
Fraud1 to explore the American Dream theory. We are well aware of the fact that anecdotal
evidence is weak evidence without empirical validation. However, our paper is written to provoke
thoughts on corporate executive Fraud in American society and to stimulate further empirical
research on social variables of executive Fraud. We also believe that a better understanding of
corporate executive Fraud would help to address some issues from a teaching perspective in our
concluding thoughts.
2. Potential theories of corporate executive Fraud
Albrecht et al. (2004) describe a Broken Trust theory to explain corporate executive Fraud. It
should be noted that they have never used the term Broken Trust in their theory. We took the
liberty of labeling their theory as the Broken Trust theory. Since Albrecht et al. (2004) derive
their Broken Trust theory by linking the Agency theory and Stewardship theory to the Fraud
Triangle concept in corporate Fraud literature, we first describe the Agency theory, follow by the
Stewardship theory, and then the Broken Trust theory. We are aware that research and publication
in Agency and Stewardship theories are very extensive, but only those that are specifically related
to corporate executive Fraud are cited in this paper.
2.1. Agency theory
Agency theory was introduced into management literature by Jensen and Meckling (1976).
The theme is based on economic theory and it describes a principalagent relationship between
owners (such as stockholders) and executives, with top executives acting as agents whose personal
interests do not naturally align with shareholder interests.
1 Recent high profile Fraud by corporate executives include (in alphabetic order): Adelphia (John Rigas), Cendant (Walter
Forbes), Enron (Kenneth Lay), Global Crossing (Juan Legere), HealthSouth (Richard Scrushy), Homestore (Stuart Wolff),
Qwest (Joseph Nacchio), Sunbeam (Al Dunlap), Tyco (Dennis Koalowski), Waste Management (Dean Buntrock), and
WorldCom (Bernie Ebbers). We focus on three in this paper: Enron, WorldCom, and Cendant.

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The principalagent relationship involves a transfer of trust and duty to the agent while assuming that the agent is opportunistic and will pursue interests, including executive Fraud, which are
in conflict with those of the principal. This potential conflict of interests is often referred to as
the Agency problem (Davis, Shoorman, & Donaldson, 1997). A typical solution to the Agency
problem is to structure executive incentives, such as stock options, in such ways that they align
executive behavior with stockholder goals. Another common solution to the Agency problem is
for the board of directors to control and curtail the opportunistic behavior of the executives by,
for example, the audit committee (Donaldson & Davis, 1991).
However, the studies cited in Davis et al. (1997) indicate corporate executives are extremely
complex human beings and the Agency problem persists. Recent studies by Daily, Dalton, and
Canella (2003) and Sundaramurthy and Lewis (2003) also show that, in practice, corporate executives have power to counteract the boards control over them. For example, the corporate executives
can exercise influence over the board because they are more in tune with daily operations of the
company, or they exercise influence over succession of the board to ensure that board members
who agree with them are appointed. Finally, Bebchuk and Fried (2004) argue that corporate
executives influence over the board of directors on pay setting can explain a wide range of compensation practices and patterns. This includes ones that have long been viewed as puzzles by
economists such as why pay is higher and less sensitive to bad performance, including Fraud, in
corporations in which executives are more entrenched or have more power vis-`a-vis the board.
2.2. Stewardship theory
In contrast to Agency theory, Stewardship theory is based on psychology theory that views corporate executives as stewards of their companies who will choose the interests of the stockholders
over the interests of self, regardless of personal motivations or incentives (Donaldson & Davis,
1991; Sundaramurthy & Lewis, 2003). Since the executives can be trusted to place stockholder
interest first, the board of directors focuses on empowering rather than controlling the executives.2
Like Agency theory, Stewardship theory seeks the alignment of corporate executives with the
stockholders interests. Also, like Agency theory, Stewardship theory cannot explain the complex
behavior of the executives such as whether they will or will not break the trust and commit Fraud.
For example, the boards lack of psychological independence3 from the corporate executives
underlying the Stewardship relationship may be partly to blame for the executives fraudulent
behavior. A lack of psychological independence is a problem in many boardrooms across corporate
America. As pointed out by Lorsch,4 directors tend to like and admire their corporate executives.
They find it hard to penalize their corporate executives even when the company is doing badly
and they tacitly tolerate the executives fraudulent behavior.

2 Another theory that focuses on empowering the corporate executives is Resource Dependency theory (Daily et al.,
2003). This theory holds that the board of directors is boundary spanner of the company and its environment. It provides
the corporate executives access to resources to which they would not normally have access. For example, a lawyer might
be appointed to the board to provide legal advice to the executives.
3 Psychology independence refers to the boards lack objectivity both affectively (e.g., directors can be blind sighted by
their admiration for the corporate executives persona) and cognitively (e.g., directors can be blind sighted by their belief
in the corporate executives expertise).
4 View points posted on the Harvard Business Schools Corporate Governance, Leadership & Values website:
http://www.cglv.hbs.edu/ December 2005.

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2.3. Broken Trust theory

Since Albrecht et al. (2004) Broken Trust theory is related to a Fraud Triangle concept
from corporate Fraud literature, we begin by describing the origin of the Fraud Triangle concept.
Much of the current corporate Fraud literature is based on the early work of Edwin H. Sutherland
(18831950), a criminologist at Indiana University. Sutherland (1949) was particularly interested
in Fraud committed by the elite business executives against stockholders. He coined the term
white-collar crime to mean criminal acts of corporations and individuals acting in their corporate capacity. One of Sutherlands brightest students at Indiana University was Donald R. Cressey
(19191987). Cressey (1973) was especially interested in the circumstances that led embezzlers,
whom he called trust violators, to be overcome by temptation. His hypothesis about the psychology of the embezzlers was later become known as the Fraud Triangle concept, which consists of
three variables: perceived financial need, perceived opportunity, and rationalization. In the early
1980s, the Fraud Triangle concept was adapted from criminology to accounting by Steve Albrecht
of Brigham Young University. Albrecht was especially interested in identifying factors that led
to occupational Fraud and abuse. His study suggests that there are three variables involved in
occupational Fraud. Consistent with Cresseys Fraud Triangle concept: . . .it appears that three
elements must be present for a Fraud to be committed: a situational pressure, a perceived opportunity to commit and conceal the dishonest act, and some way to rationalize the act as either being
inconsistent with ones personal level of integrity (Albrecht, Howe, & Romney, 1984, p. 5).
Later, the Statement on Auditing Standards No. 99: Considerations of Fraud in a Financial Statement Audit issued by the AICPA (2002) adopted much of Albrechts work on the Fraud Triangle
concept detailed in his book Fraud Examination (2003). The auditing standard also incorporated
many Fraud risk factors associated with the three variables of the Fraud Triangle concept: (1) a
pressure such as a financial pressure to meet analysts expectation, (2) an opportunity such
as weak internal controls, and (3) some way to rationalize such as our stock options depend
on it.
In 2004, Albrecht et al. combined the Fraud Triangle concept, the Agency theory, and the
Stewardship theory to develop a Broken Trust theory of corporate executive Fraud. Their Broken
Trust theory explains corporate executive Fraud in a matrix that links the three variables to
corporate executive whose behavior is either consistent with the Stewardship theory or Agency
theory; whose corporate structure is either consistent with the Stewardship-based structure or
Agency-based structure, and whose compensation is either consistent with the Stewardship-based
rewards and incentives or Agency-based rewards and incentives. We summarized their matrix in
Table 1. Albrecht et al. conclude that, to a meaningful degree, executives self-identify with
behavior either more consistent with the Agency theory or Stewardship theory of management,
and that those whose behavior is, in fact, more consistent with Stewardship theory are more
trustworthy and generally less likely to commit Fraud (2004, p. 109). A tenet of Albrecht et
al.s Broken Trust theory is that both the Agency theory and Stewardship theory share a common
element, transference of some measure of trust from shareholders to executive level managers,
and when executives commit Fraud they intentionally break the trust and betray shareholders.
We next describe an American Dream theory from sociology literature as a complement to
Albrecht el al.s Broken Trust theory because we believe the Broken Trust theory has two key
limitations. First, a vast majority of management research in Agency and Stewardship theories
addresses executive behavior in stable or growing companies, but not in companies involved
in Fraud (Daily et al., 2003). Therefore, the Broken Trust theory, based on the Agency and
Stewardship theories, assumes it can explain executives fraudulent behavior in both Fraud and

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Table 1
The Fraud Triangle concept, Broken Trust theory, and American Dream theory
Fraud Triangle concept

Broken Trust theory

American Dream theory

Pressure

Pressure to commit Fraud leads corporate

executives to break their Agency or
Stewardship relationship
Corporate executives have opportunities to
break their Agency or Stewardship
relationship
Corporate executives are inclined to
rationalize their fraudulent actions and
behavior

An intense emphasis on monetary success

induces corporate executive Fraud

Opportunities

Rationalization

Corporate executives exploit/disregard

regulatory controls to commit Fraud
A corporate environment that is preoccupied
with monetary success provides
justification/rationalization for success by
deviant means such as Fraud

non-Fraud companies. Such assumption is weak given that there is very little evidence in the
Agency and Stewardship theories that addresses executive behavior in companies involved in
Fraud.
Second, we believe the Broken Trust theory relate well to the first two variables (Pressure and
Opportunity) of the Fraud Triangle concept, but not the third variable (Rationalization) because
Albrecht et al. (2004, Table 3, p. 127) provide very little explanation on why or how the corporate
executives would rationalize their fraudulent behavior under the Broken Trust theory. An earlier
version of this paper was sent to Albrecht et al., and Steve Albrechts subsequent email confirms
that the Broken Trust theory does not relate very well to the variable of rationalization.
3. Origin of the American Dream theory
The term the American Dream was introduced into contemporary social analysis in 1931 by
historian James Truslow Adams to describe his vision of a society open to individual achievement.
Interestingly, Adams sought to have his history of the United States, Epic of America, entitled The
America Dream, but his publisher rejected the idea, believing that during the Great Depression,
consumers would never spend three dollars on a dream. (Adams, 1931, p. 68). The term soon
became a sales slogan for the material comforts and individual opportunities of a middle-class
lifestyle: a car, a house, education for the children, and a secure retirement.
The persistence of the term the American Dream over subsequent decades is documented in
the work of Elizabeth Long, who has analyzed cultural changes in the United States during the
years following World War II. Long examines the shifting meanings of the dream of success as
reflected in best-selling novels published between 1945 and 1975. She concludes that the core
components of the American Dream were reflected in popular writings throughout the 30-years
period following World War II (Long, 1985, p. 196).
An American Dream theory of crime in the United States was introduced into contemporary
sociology by Messner and Rosenfeld (1994). They developed the American Dream theory as an
extension to the Anomie theory associated with the work of the American sociologist Merton
(1938). A central idea of Mertons Anomie theory is that motivations for crime do not result simply
from the flaws, failures, or free choices of individuals. A complete explanation of crime ultimately
must consider the sociocultural environments in which people conduct their daily lives. Merton
argues that the social system in the United States is a prime example of a system characterized by
internal strain and contradictions. Specifically, Merton observes that an exaggerated emphasis is

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placed on the goal of monetary success in American society, coupled with a weak emphasis placed
on the importance of using the socially acceptable means for achieving this goal.5 The result of
these sociocultural environments is a pronounced strain toward anomie, that is, a tendency for
social norms to lose their regulatory force. Originally, an 18th century French sociologist, Emile
D. Durkheim, defined the term anomie as a condition where social, moral norms, or both are
confused, unclear, or simply not present. Durkheim felt that this lack of norms or pre-accepted
limits on behavior in a society led to deviant behavior such as individual suicide or executive
Fraud (Giddens, 1972, p. 184 in The Division of Labor in Society translated by George Simpson).
Later, Cloward and Ohlin (1960) expanded Mertons Anomie theory to include circumstances that
provide the opportunity for people to acquire through illegitimate activities, such as gang activities,
what they cannot achieve through accepted methods.
Messner and Rosenfeld (1994) observe that Mertons Anomie theory does not provide a fully
comprehensive sociological explanation of crime in America. They argue that the most conspicuous limitation of Mertons theory is that it focuses exclusively on one aspect of the American
social structure: inequality in access to the legitimate means for success. As a consequence, it
does not explain how specific features of the broader institutional structure of society interrelate
to produce the anomic pressures that are responsible for crime. Messner and Rosenfeld (1994)
developed an institutional6 anomie theory similar to Mertons and called it the American Dream
theory.
A basic tenet of Messner and Rosenfeld (1994) American Dream theory is that the pursuit of
monetary success (i.e., the institution of economy) has come to dominate the American society,
and that the non-economic institutions (i.e., the institution of education, the institution of polity,
and the institution of family) have tended to become subservient to the economy. For example,
the entire educational system seems to have become driven by the job market, politicians get
elected on the strength of the economy, and despite lip service to family values, executives are
expected to uproot their families in service to corporate life. Goals other than material success,
such as teaching, are missing from the portrait of the American Dream, as reflected in the old
adage Those who can, do; those who cant, teach (Long, 1985, p. 196).
Messner and Rosenfeld (1994) American Dream theory points to a broad cultural ethos7 in
which the goal of monetary success is to be pursued by everyone in a mass society dominated
by huge multinational corporations. As they observe: Given the strong, relentless pressure for
everyone to succeed, understood in terms of an inherently elusive monetary goal, people formulate
5 We realize that American capitalism put emphasis on socially acceptable means for financial success, such as competition. In addition, American education system put some emphasis on socially acceptable means for financial success, such
as collaboration. However, as pointed out by Merton (1938), a key issue here is the exaggerated emphasis on financial
success in a capitalist society that leads to socially unacceptable means.
6 Messner and Rosenfelds (1994, p. 66) develop their America Dream theory with reference to four social institutions
the family, the education, the polity (political system), and the economy. The institution of family bears the responsibility for the care of dependent persons and to provide emotional support for its members. The institution of education
bears the responsibility for transmitting basic knowledge to new generations and to prepare youth for the demands of
occupational roles. The institution of polity bears the responsibility for protecting members of society and to mobilize and
distribute power to attain collective goals. Finally, the institution of economy bears the responsibility for the production
and distribution of goods and services.
7 We caution against an overly simplistic interpretation of American culture. The United States is a complex and, in
many respects, culturally pluralistic society. It neither contains a single, monolithic value system nor exhibits complete
consensus surrounding specific value issues. We nevertheless concur with Hochschilds (1995, p. xi) that the American
Dream has been, and continues to be, a defining characteristic of American culture, a cultural ethos against which all
competitors must contend.

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wants and desires that are difficult, if not impossible, to satisfy within the confines of legally
permissible behavior (1994, p. 77). This key feature of the American Dream helps explain
corporate Fraud that offers monetary success to corporate executives. Moreover, the distinctive
cultural message accompanying the monetary success goal is to pursue the American Dream
by any means necessary. This anomic orientation of the American Dream helps explain top
executives tacit approval of corporate Fraud.
We believe a better understanding of corporate executive Fraud is possible by relating three key
features of the American Dream theory (Intense emphasis on monetary success, corporate executives exploit/disregard regulatory controls, and corporate executives justify/rationalize fraudulent
behavior) with the three variables of the Fraud Triangle concept (Pressure, Opportunity, and
Rationalization).
4. The American Dream theory and Fraud Triangle concept
4.1. An intense emphasis on monetary success (pressure)
An intense emphasis on monetary success in the corporate environment, which promotes
productivity and innovation, also induces Fraud by corporate executives. Messner and Rosenfeld
(1994, p. 8) argue that monetary success, which is responsible for the impressive accomplishments
of American society, is also responsible for generating strong pressures to succeed in a narrowly
defined way and to pursue such success by any means necessary including Fraud. In other words,
while monetary success has provided the motivational dynamic for entrepreneurship, corporate
expansion, extraordinary technological innovation, and high rates of social mobility, it also has
provided the motivational dynamic for greed, corporate Fraud, unethical behavior, and illegal
act.
4.2. Corporate executives exploit/disregard regulatory controls (opportunities)
An intense emphasis on monetary success leads to a pronounced strain toward anomie, that is, a
tendency for corporate executives to exploit/disregard regulatory controls for monetary gains. The
American Dream embodies the basic value of materialism8 that has been described as fetishism
of money (Taylor, Walton, & Young, 1973, p. 94). This value orientation contributes to the anomic
character of the American Dream: its strong emphasis on the importance of accumulating monetary
rewards with its relatively weak emphasis on the importance of following legitimate rules and
regulations to do so. In other words, corporate executives seek opportunities to exploit/disregard
normative rules and regulations when these rules and regulation threaten to interfere with the
realization of their monetary success.
4.3. Corporate executives justify/rationalize fraudulent behavior (rationalization)
A corporate environment that is preoccupied with monetary success, and that implicitly or
explicitly allows corporate executives to exploit/disregard regulatory controls, also provides
8 We realize that Americans are not uniquely materialistic, for a strong interest in material well-being can be found
in most societies. Rather, the distinctive feature of American culture is the preeminent role of money as the metric of
success. Orru (1990, p. 235) succinctly expresses the idea in the following terms: Money is literally, in this context, a
currency for measuring achievement.

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Table 2
Intense emphasis on monetary success induces corporate executive Fraud
Enron
According to the federal indictment, Kenneth Lay, the CEO, received about $300 million from the sale of Enron
stock options and restricted stock, netting over $217 million in profit, and was paid more than $19 million in
salary and bonuses
Source: The Practical Accountant. Boston: September 2004. Vol. 37, Issue no. 9, p. 9
Enron has huge amounts of debt and leverage that placed enormous financial pressure on executives to not only
have high earnings to offset high interest costs but also to report high earnings to meet debt and other
covenants. For example, Enrons derivatives-related liabilities increased from $1.8 to $10.5 billion in 2000
Source: http://www.bizjournals.com/portland/stories/2002/12/30/daily17.html
WorldCom
WorldCom executives were endowed with millions of dollars in stock options that motivated them to manage the
stock price rather than to manage WorldCom. For example, Bernie Ebbers, the CEO, had a cash-based salary of
$935,000, yet he received questionable corporate loan totaling $409 million for dealing in stock options
Source: http://www.usatoday.com/money/companies/managment/2002-12-23-ceo-loans x.htm.
Cendant
Executives in the fraudulent scheme took pains to ensure that CUC quarterly earnings closely matched Wall
Street analyst predictions. They made certain that CUCs earnings never fell even slightly short of the analysts
consensus prediction, for fear of triggering a decline in the CUC stock price
Source: http://www.usdoj.gov/usao/nj/publicaffairs/releases/2000/ce0614 r.html
The merger of Forbes CUC and Silvermans HFS to create Cendant shows what happens when the quest to please
the financial market takes precedence over common sense. Even without the accounting Fraud, the marriage of
Forbes CUC and Silvermans HFS was a disaster waiting to happen. Well before they reached the altar, the two
executives had developed a deep distrust of even contempt for each other. Their corporate cultures clashed
horribly. Their rival management teams acted more like entrenched armies than merger partners. . . but the two
men went through with the deal anyway that they managed to convince themselves that they could somehow
make it work shows how blinded they had become by Wall Streets approbation
Source: Fortune, A merger made in Hell: The inside story of the decades dumbest deal, by Peter Elkind,
November 9, 1998. Vol. 138, Issue no. 9, pp. 134145

justification/rationalization for success by any means such as Fraud. In this regard, the American Dream is a mixed blessing, providing justification/rationalization for both the best and
the worst elements of the American character and society (Messner & Rosenfeld, 1994, p.
7), or in the words of sociologist Robert K. Merton, A cardinal American virtue, ambition,
promotes a cardinal American vice, deviant behavior (Merton, 1968, p. 200). Since monetary success is inherently open-ended, that is, it is always possible in principle to have more
money9 ; the American Dream offers no final stopping point, and it requires never-ending
achievement (Passas, 1990, p. 159). Therefore, the desire to accumulate money is relentless; it entices corporate executives to pursue their monetary goals by any means necessary
9 According to a survey by Klinger et al. (2002), the average CEO salary in the United States, including cash, options
and stock, during the period 19992002 was $36.5 million. They also reported that the salaries of CEOs of the 23 largest
accounting Frauds during the period 19992002 was 70% higher than the average CEO salary, or an average of $62.2
million compared to $36.5 million. Moreover, according to a study by Abdowd and Kaplan (1999), CEOs in the United
States receive salaries that are out of line with salaries in a comparison group of CEOs in 11 other comparable countries.

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and provides justification/rationalization for their monetary success by deviant means such as
Fraud.
5. Anecdotal evidence
In sum, the three key features of the American Dream theory Intense emphasis on monetary success, corporate executives exploit/disregard regulatory controls, and corporate executives
justify/rationalize fraudulent behavior have their institutional underpinnings in the capitalist economy of the United States (i.e., the institution of economy, see Footnote 6). What
is distinctive about the capitalist economy of the United States, however, is the exaggerated
emphasis on monetary success, which overwhelms other corporate goals and becomes the
principal measuring rod for success. The resulting proclivity and pressures to perform induce
Table 3
Corporate executives exploit/disregard regulatory controls to commit Fraud
Enron
The nature of U.S. GAAP, which is more rule-based than principles-based, creates opportunity for executives to
exploit possible loopholes in accounting practice or to ignore SEC regulations. For example, Arthur Andersen,
the auditor of Enron, did not argue against the creation of Special Purpose Entities (SPEs) by Enron executives
that are clearly against acceptable accounting practice
Source: http://news.bbc.co.uk/1/hi/business/3875941.stm
In reply to a question about Enrons perceived arrogance and disdain for the law, Kenneth Lay, the CEO, pointed
to what he considered another great corporation unfairly maligned by ignorant critics as arrogant: Drexel
Burnham Lambert, an investment bank that like Enron rose quickly from obscurity to market dominance
during the junk-bond boom of the 1980s, only to implode amid charges of wrongdoing. Ken Lay gushed about
the brilliance of Michael Milken, Drexels star trader, who ended up in jail. Mr Milken, a dear friend, was
accused of being arrogant, he said, but was just being very innovative and very aggressive
Source: http://www.economist.com/global agenda/ 2004-7-9 x.htm
WorldCom
Buford Yates Jr., WorldComs director of general accounting, admitted that he followed orders from supervisors,
former Controller David F. Myers and former CFO Scott Sullivan, to manipulate the companys books to
reduce expenses, create illusory profits and satisfy Wall Street expectations. He further hinted that the illegal
accounting entries had been approved at the highest levels of WorldCom management
Source: Wall Street Journal, WorldCom Yates pleads guilty Former accounting officer says he followed orders to
manipulate the books, by Jerry Markon, October 8, 2002, p. A.3
Scott Sullivan testified that he made the illegal accounting adjustments because Bernie Ebbers, the CEO,
instructed him to hit our number, or meet Wall Streets revenue and earnings targets. I knew it was wrong
and I knew it was against the law, Sullivan said, but I thought we would make it through. Sullivan admitted:
It had been that way since I was chief financial officer of the company
Source: http://biz.yahoo.com/ap/050218/ebbers sullivan 6.html. Sullivan: Fixing WorldCom books was wrong, by
Erin McClam. Associated Press
Cendant
According to the SEC documents, CUC management maintained an annual schedule setting forth opportunities
that were available to inflate operating income, creating a cheat sheet listing the opportunities that would be
used in the coming year and the amounts that would be needed from each opportunity
Source: Ohio CPA Journal, Case histories of Fraud and abusive earnings management, by Lorraine Magrath and
Leonard G. Weld, June 2002, Vol. 61, Issue No. 2, pp. 2531

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Table 4
Corporate executives justify/rationalize their fraudulent behavior
Enron
Kenneth Lay, the CEO, knew about the creation of Special Purpose Entities (SPEs) by Enron executives to hide
Enrons debt and generate revenue from trades that lacked economic substance, as the Enron board had to
approve them. Along with other top Enron executives, Kenneth Lay deviously denied any warning about the
SPEs with a shrug: Tell me something I dont know
Source: http://www.forbes.com/2002/01/15/0115topnews.html
Even as Enron was rapidly crumbling, Kenneth Lay repeatedly reassured employees and the financial community
about the companys health at the same time he was quietly unloading his own Enron stock. According to the
federal indictment, Kenneth Lay sold 918,000 shares of Enron stock from August through the end of October
2001, the period during which he was urging employees not to panic. In one all-employee meeting, Kenneth Lay
told Enrons 28,000 employees that [o]ur liquidity is fine. As a matter of fact, its better than fine, its strong
Source: http://money.cnn.com/2004/07/08/news/newsmakers/lay/
WorldCom
Bernie Ebbers reportedly once said that drawing up an employee code of conduct would be a colossal waste of
time
Source: http://www.nlpc.org/, Broadcast Transcript of National Public Radio All Things Considered, by Jim
Zarroli, December 17, 2003
Cendant
Cosmo Corigliano, the CFO, in court testimony regarding the Fraud stated: It was ingrained in all of us,
ingrained in us by our superiors, over a long period of time, that (accounting irregularities) was what we did
Source: The New York Times, 3 Admit guilt in falsifying CUCs books, by F. Norris and D.B. Henriques, June 5,
2000, p. C-1
CUC justified its manipulations of the consolidated accounts by simply calling some fraudulent adjustments as
consolidation entries and $200 million underreported insurance claims by simply calling them accounting
errors. Ernst & Young, its auditors, did not publicly object to the fraudulent entries
Source: The Time, Standards called to account over Cendant, by Oliver, 14 August 1998

corporate executives to exploit rules and regulations that stand in the way of corporate success, and at the same time provides rationalization for their non-compliance with rules and
regulations.10
We focused on three recent high profile executive Frauds Enron, WorldCom, and Cendant for
anecdotal evidence to support the American Dream theory. The anecdotal evidence is categorized
into three tables, one for each of the three key features of the American Dream theory and the
Fraud Triangle concept. Table 2 provides anecdotal evidence on An Intense Emphasis on Monetary
Success Induces Corporate Executive Fraud (Pressure), Table 3 provides anecdotal evidence on
Corporate Executives Exploit/Disregard Regulatory Controls to Commit Fraud (Opportunities),
and Table 4 provides anecdotal evidence on corporate executives justify/rationalize their fraudulent
behavior (rationalization).

10 Albrecht et al. (2004, p. 120) suggest that an increasing moral decay in American society results in an increasing
numbers of individuals entering the business world with situational ethics; that is, they do whats right if it pays to do
whats right and often do otherwise if there are rewards for doing so. These situational ethics make it easier for executives
to rationalize their non-compliance behavior.

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213

6. Concluding thoughts
We believe that the exaggerated emphasis on monetary success incorporated in American
Dream will continue to be a catalyst for Fraud by corporate executives in the United States.11 In
this paper, we only provide some anecdotal evidence from recent high profile corporate executive
Fraud to explore the American Dream theory. Our aim is to provoke thoughts on corporate
executive Fraud in American society and to stimulate further empirical research on social variables
of executive Fraud. In addition, such future research may help to address the following three issues
relating to corporate executive Fraud from a teaching perspective.
The first issue is the lack of Fraud courses in business schools. We agree with Albrecht et al.
(2004) that business schools are partly to blame for perpetuating corporate Fraud in that they have
not provided sufficient ethics training to students and have failed to teach students about Fraud.12
One author of this paper has taught an accounting Fraud examination course (supported by the
Association of Certified Fraud Examiners) for 2 years, and it is his experience that most business
school graduates would not recognize a Fraud if it hit them between the eyes (Albrecht et al.,
2004, p. 124).
The second issue is the lack of Fraud content in accounting courses. We agree with Ketzs13
view that todays accounting students are graduating without the necessary tools to fight Fraud and
strongly endorse his seven recommendations to remedy this problem. His recommendations are:
(1) the accounting industry must raise salaries; (2) educators must stop watering down courses
with watered-down accounting textbooks; (3) accounting courses need to focus more on the
practical content; (4) students should study financial statement analysis; (5) students need more
work in Information Systems; (6) accounting firms should utilize more senior, more experienced
individuals on an audit; (7) accounting firms need to supplement the training of newly minted
accounting graduates.
The third issue is the perfunctory punishment for academic dishonesty. We believe that business
schools should actively curtail academic dishonest behavior and rigorously enforce punishments
for such deviant behavior. Recent surveys have shown that dishonesty among students appears to
be increasing. For example, the Josephson Institute of Ethics14 found that the percentage of high
school students who admitted to cheating on exams had increased from 71 percent in 2001 to 74
percent in 2002, the percentage of high school students who admitted lying to their parents had
increased from 92 percent in 2001 to 93 percent in 2002, the percentage of high school students
who said they would lie to get a job had increased from 27 percent in 2001 to 37 percent in 2002, and
the percentage of high school students who admitted to taking something from a store increased
from 35 percent in 2002 to 38 percent in 2003. Similarly, research at the University of California
11 We realize the limitation of the American Dream theory outside the American culture. For example, Roberto Kelso,
President of the Panamanian Association of Fraud Examination, pointed out that, In our part of the world, there are various
considerations that for most people of developed countries would certainly constitute a nightmare. Yet for underdeveloped countries, tax evasion, paying grease money to public officials, buying contraband, buying counterfeit, insurance
Fraud on property and health claims, are just some of what we denominate cultural acceptable tradeoffs (Private email
communication, 22 July 2005).
12 It is interesting to note that, Jeffrey Lucy, chairman of the Australian Securities and Investments Commission (ASIC)
laments that the ASIC probably spends most of its time in consumer education about Fraud [relative to time spends in
Fraud investigation and prosecution]. (Quoted in Charter, The Institute of Chartered Accountants in Australia, August
issue, 2005, p. 28).
13 Edward Ketz, a frequent contributor to The Accounting Cycle column of http://www.smartpros.com.
14 http://www.josephsoninstitute.org/Survey2002/survey2002-pressrelaease.htm.

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F. Choo, K. Tan / Accounting Forum 31 (2007) 203215

at Berkeley15 found that there had been a 115 percent increase in reported cases of student
dishonesty between 1995 and 2000. Although these studies are silent on whether an increasing
population of dishonest students will result in an increasing population of dishonest workforce,
we believe dishonest business students are more likely to carry on their cheating behavior into
the business world. For example, Sims (1993) reported a correlation between cheating in college
and unethical behavior in the workplace, and Ogilby (1995) found that accounting students who
engage in questionable unethical academic behavior also are likely to do the same as accounting
professionals.
Acknowledgements
We gratefully acknowledge the insightful comments and suggestions made by the three anonymous reviewers. We thank Roberto Kelso, President of the Panamanian Association of Fraud
Examination, for his helpful comments. We also thank Steve Albrecht for his feedback and
inspiration. An earlier version of this paper was presented at the 17th Asian Pacific Accounting
Conference in New Zealand. We are grateful for the comments and feedback we received from
the conference participants.
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