Email server hijacking

Hey all,

Has any one ever come across a situation where someone would get an email that looks just it's coming from his/her account but was never sent by the account holder.
I had this happen to me the other day where a business contact of mine got an email that looked like to be coming from my work email address saying that my company was in dire straits. It looked genuine to me for a moment!!! I'm seeking advice on two fronts:

1. Is this thing preventable? Someone told me that email encryption can help. Any suggestions?

2. Is there someone to find out who sent this real-looking email?

I'll appreciate any and all pointers/tips.

Thanks much!