Lately, though, Beneish has been involved with a new fraud indicator based on a case growing out of research into American Italian Pasta Co. (a turn of events that left one former student amused, he says, by the irony of a food-production company cooking the books.)

American Italian Pasta was suffering years ago from Atkins Diet fallout -- and a resultant nationwide decline in carbohydrate consumption -- when the Securities and Exchange Commission found in 2004 that it had manipulated earnings by improperly capitalizing expenses. That led to a restatement of earnings, and a precipitous share price drop. As Beneish prepared a case study using American Italian, it became clear that the fraud could have been detected by looking at the ratio of the property, plant and equipment balance sheet line to company sales.

"If we had figured that out, we [also] could have caught Worldcom," he says of the finding, relating it to one of the major corporate frauds of the last dozen years.

He has yet to publish his findings on the American Italian case. But generally, Beneish's research suggests that investors far too often are willing to bite at such fraudulent schemes.

A with Cornell University's D. Craig Nichols showed that while "firms with a high probability of overstated earnings have lower future earnings, less persistent income accruals and lower future returns," institutional investors -- those presumably in charge of the "smart money" -- actually "increase their holdings in firms with a high probability of manipulation." That tendency can stem from investor error, or a willing suspension of disbelief in the pursuit of gain. "If you get in early on a Ponzi scheme you could make out like a thief," he notes.