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Resisting Corporate Corruption
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Resisting Corporate Corruption
by Stephen V. Arbogast
Resisting Corporate Corruption, 3rd Edition
Cover
Title page
Copyright page
Foreword
Preface
Note to Faculty: How to Use this Book
Acknowledgements
Section 1: The Enron Cases
Part 1: Demolishing Financial Control, Neutering the Gatekeepers
Case 1: Enron Oil Trading (A): Untimely Problems in Valhalla
Natural Gas Pipelines in Crisis
Considering the Options
The Meeting with Internal Audit
Author’s Note
Notes
Essay 1: How to Do an Ethics Case Study
The Solution Framework: Defining the Ethics Issue
Tactical Planning and Alternative Business Plans
Personal Considerations
A Final Word About Financial Control
Case 2: Enron Oil Trading (B): An Opening for Enron Audit?
Author’s Note
Notes
Essay 2: How a Corporation Becomes Corrupt
Case 3: Enter Mark-to-Market: Exit Accounting Integrity?
Jeff Skilling’s Association with Enron
Serge Goldman Prepares to Meet Jeff Skilling
Author’s Note
Note
Essay 3: Necessary Ammunition: Economic Rationales for Financial Control
Financial Control at the Heart of Business Success: Personal Experience
Summarizing the Controls/Business Success Intangibles
The Economic Consequences of Sound Financial Control
Notes
Part 2: Business Struggles, Accounting Manipulations
Case 4: Adjusting the Forward Curve in the Backroom
Conversation with T.J. Malva
Ethics Assessment and Tactical Options
Author’s Note
Case 5: Enron’s SPEs: A Vehicle too Far?
Enron and Special Purpose Entity (SPE) Vehicles
Chewco Investments
Author’s Note
Notes
Case 6: Court Date Coming in California?
California Decontrols Electricity
Enron’s ‘Star Wars’ Gambits
Political Fallout in California
Enron Legal Investigates
SR Produces a Legal Opinion
Author’s Note
Notes
Part 3: Resisting Corruption at Enron
Case 7: New Counsel for Andy Fastow
Determining a Course of Action
Author’s Note
Notes
Case 8: Nowhere to Go with the ‘Probability of Ruin’
The Enron Companywide Risk Management Report
Kaminski and LJM
Meeting with Ben Glisan
Elsewhere in Enron
Author’s Note
Notes
Case 9: Lay Back … and Say What?
Problems Deciding What to Say
Skilling Decides to Call it Quits
Assessing the Broader State of Enron
Focusing on the Task at Hand
Author’s Note
Notes
Case 10: Whistleblowing Before Imploding in Accounting Scandals
Welcome Back; Now Meet the Raptors
Pondering an Approach to Ken Lay
A Decision to Go Forward
Author’s Note
Notes
Essay 4: Resisting Corporate Corruption: The Enron Legacy
Tactical Lessons for Internal Resistance
Tactical Lessons for Taking Ethics Issues Outside the Firm
Implications for the Financial Crisis Cases
Essay 5: Underappreciated Origins of the Financial Crisis – A Personal Memoir
Jack Bennett Shakes Up Wall Street
Wall Street Restructures, Consolidates, and Innovates
Trading Dominates Banking and Client Relations Change
Prelude to Financial Crisis
Section 2: The Financial Crisis Cases
Part 1: New Business Models Undermine Standards and Controls
Case 1: Seeking a Sustainable Business Model at Goldman Sachs
Banking vs. Trading at Goldman Sachs
Competitive Pressures Change Wall Street’s Business Model
Embarrassment and Unprecedented Losses
Hank Paulson Decides on a ‘Counter to Corzine’
Author’s Note
Notes
Case 2: Juggling Public Policy, Politics and Profits at Fannie Mae
Origins of a Conflicted Government Entity
New Law, Politics and the ‘Housers’ Complicate Fannie Mae’s Mission
Reconciling Wall Street Performance and ‘Affordable Housing’
Beating Back the Privatizers
Wall Street Mounts an End Run, and Fannie Lowers its Standards
The Year 1998
Guidance for Franklin Raines
Author’s Note
Notes
Case 3: Should Countrywide Join the Subprime ‘Race to the Bottom?’
Nature and Structure of the U.S. Mortgage Business, 1940–85
Wall Street Develops Collateralized Mortgage Obligations (CMOs)
‘Subprime 1.0’ Temporarily Sobers the Market
Countrywide’s Strategy in the 1990s
AmeriQuest Launches a Subprime ‘Race to the Bottom’
Mozilo Reconsiders Countrywide’s Subprime Strategy
Author’s Note
Notes
Case 4: Subprime Heading South at Bear Stearns Asset Management
Hedge Funds Develop on Wall Street
Bear Stearns Forms its Own Hedge Funds
Mortgage Market Trends and HGF Disclosure
Financial Control Issues at HGF
Cioffi and Tannin Respond to Growing Pressures
February 2007: ELF Performance Turns Negative
Matthew Tannin Considers His Response to Barclays Bank
Author’s Note
Notes
Part 2: Consequences for Gatekeepers and Firms
Case 5: Ratings Integrity vs. Revenues at Moody’s Investors Services
RMBS/CDO Ratings: Kolchinsky Protests and is Transferred
Moody’s Becomes a NRSRO
Moody’s Culture Changes, and the Firm Goes Public
Subprime Mortgage Debt: The Ratings Methodology Challenge
The Subprime Market Begins to Unravel
Summer 2008 – Moody’s Prepares to Resume Ratings
Author’s Note
Notes
Case 6: Admission of Material Omission? Citigroup’s SIVs and Subprime Exposure
Citibank’s Subprime Product Flow and its SIVs
Citibank Structures and Launches Subprime SIVs
Citibank’s SIVs Finesse the VIE Rules
Conditions Worsen in the Mortgage and RMBS/CDO Markets
Citibank Reports Second Quarter Results
Third Quarter Events Hammer Citi’s Results
Considering Citi’s 3Q Results and IR’s Proposed Pre-Announcement
Author’s Note
Notes
Case 7: Facing Reputational Risk on Goldman’s ABACUS 2007-AC1
From Subprime RMBS to CDOs to SCDOs
Goldman’s Trading and its Clients, 2006–07
Fabrice Tourre Constructs ABACUS 2007-AC1
Tourre Prepares for the MCC ABACUS Review
Author’s Note
Notes
Case 8: Time to Drop the Hammer on AIG’s Controls?
Innovation and Controls on Wall Street
Management and Controls at AIG
Greenberg Takes a Fall for AIG’s ‘Cooked Books’
AIG-FP Confronts a Subprime Market Decline
FP Faces Collateral Calls on Subprime CDS
Ryan and PWC Approach a Decision
Author’s Note
Notes
Part 3: Financial Firms and Resisters
Case 9: Write to Rubin? – Pressure on Underwriting Standards at Citigroup
National City Bank Becomes a Giant Financial Conglomerate
Citi Demolishes Glass-Steagall
Organizational Challenges at Citigroup
Growth and Controls within Citigroup’s Mortgage Operations
Bowen Considers His Next Step – Write to Rubin?
Author’s Note
Notes
Case 10: Lehman Brothers Repo 105
Lehman Gets in Trouble
Repo 105 to the Rescue
Weighing Ethics, Career and Courses of Action
Author’s Note
Notes
Essay 6: Wall Street and the Crisis – Causes, Contributions and Problems to Fix
Section 3: The Post-Crisis Cases – Reforms, Resistance, Continuing Realities
Part 1: The Dodd-Frank Act: A primer
Case 1: Morgan Stanley Seeks a Sustainable Business Model after the Financial Crisis
John Mack Returns, Big Trading Comes to Morgan Stanley
Mack Guides Morgan Stanley into and Through the Financial Crisis
Mack Analyzes the Financial Crisis and Revamps MS Compensation
Mack Weights Strategic Alternatives for Morgan Stanley
Author’s Note
Notes
Case 2: Back to the Future on Goldman Sachs Reputational Risk
KMI Moves on El Paso
El Paso Reacts and Goldman Faces its Conflicts
The Business Standards Committee on Client Conflicts
Blankfein Considers Goldman’s Options to Manage its El Paso-KMI Conflicts
Author’s Note
Notes
Case 3: ‘Take Customer Cash to Survive?’ Compliance and Chaos at MF Global
Client Protections and Segregated Accounts
MF Global Courts an Illiquidity Crisis
Corzine ‘Bets the House’ on Euro Sovereign Debt
The Euro Sovereign Debt Crisis Hits
Markets Begin to Close in on MFGI
MFGI’s Final Week and a Decision on Segregated Accounts
Author’s Note
Notes
Case 4: Fix the LIBOR Fix?
LIBOR, its Fix Procedures, and Growth as a Global Benchmark
LIBOR Fixing Flaws and Incentives to Manipulate
London Banks Begin to Manipulate LIBOR Fixings
The Bank of England Learns LIBOR is Being Manipulated
The Financial Crisis Hits Barclays and LIBOR
Tucker Considers His Messages for Barclays
Author’s Note
Notes
Case 5: Too Big to Know What’s Going on at Banamex?
Oceanografía Defrauds Banamex
Managing the Global Financial Supermarket
Corbat Confronts the Banamex Scandal in a Post-Financial Crisis World
Author’s Note
Notes
Case 6: Take CitiMortgage to the Feds?
CitiMortgage Ignores FHA Procedures
Citi Fails to Fix its FHA Noncompliance Issues
Hunt Meets Her Attorney
Author’s Note
Notes
Case 7: Chipping Away at Dodd-Frank’s Volcker Rule?
Proprietary Trading, Market-Making and the Volcker Rule
What Happened in the Market?
Considering an SEC Response
Author’s Note
Notes
Essay 7: ‘And the Young Shall be Thrown Under the Bus’ – Lessons in Resisting Unethical Conduct from Enron Through the Financial Crisis
Essay 8: Resisting Corporate Corruption, 2017 – Improved Conditions, Unresolved Issues
Are the Reforms Enough? What Risks Remain Unaddressed?
Resisting Corporate Corruption – 2016
To Resist Corporate Corruption – One Thing Remains
A Note on Blogs and Law Firms
A Note on Sources
Index
The Financial Crisis Cases
The Post-Financial Crisis Cases
End User License Agreement
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Prev
Previous Chapter
Cover
Next
Next Chapter
Resisting Corporate Corruption
Contents
Cover
Title page
Copyright page
Foreword
Preface
Note to Faculty: How to Use this Book
Acknowledgements
Section 1: The Enron Cases
Part 1: Demolishing Financial Control, Neutering the Gatekeepers
Case 1: Enron Oil Trading (A): Untimely Problems in Valhalla
Natural Gas Pipelines in Crisis
Considering the Options
The Meeting with Internal Audit
Author’s Note
Notes
Essay 1: How to Do an Ethics Case Study
The Solution Framework: Defining the Ethics Issue
Tactical Planning and Alternative Business Plans
Personal Considerations
A Final Word About Financial Control
Case 2: Enron Oil Trading (B): An Opening for Enron Audit?
Author’s Note
Notes
Essay 2: How a Corporation Becomes Corrupt
Case 3: Enter Mark-to-Market: Exit Accounting Integrity?
Jeff Skilling’s Association with Enron
Serge Goldman Prepares to Meet Jeff Skilling
Author’s Note
Note
Essay 3: Necessary Ammunition: Economic Rationales for Financial Control
Financial Control at the Heart of Business Success: Personal Experience
Summarizing the Controls/Business Success Intangibles
The Economic Consequences of Sound Financial Control
Notes
Part 2: Business Struggles, Accounting Manipulations
Case 4: Adjusting the Forward Curve in the Backroom
Conversation with T.J. Malva
Ethics Assessment and Tactical Options
Author’s Note
Case 5: Enron’s SPEs: A Vehicle too Far?
Enron and Special Purpose Entity (SPE) Vehicles
Chewco Investments
Author’s Note
Notes
Case 6: Court Date Coming in California?
California Decontrols Electricity
Enron’s ‘Star Wars’ Gambits
Political Fallout in California
Enron Legal Investigates
SR Produces a Legal Opinion
Author’s Note
Notes
Part 3: Resisting Corruption at Enron
Case 7: New Counsel for Andy Fastow
Determining a Course of Action
Author’s Note
Notes
Case 8: Nowhere to Go with the ‘Probability of Ruin’
The Enron Companywide Risk Management Report
Kaminski and LJM
Meeting with Ben Glisan
Elsewhere in Enron
Author’s Note
Notes
Case 9: Lay Back … and Say What?
Problems Deciding What to Say
Skilling Decides to Call it Quits
Assessing the Broader State of Enron
Focusing on the Task at Hand
Author’s Note
Notes
Case 10: Whistleblowing Before Imploding in Accounting Scandals
Welcome Back; Now Meet the Raptors
Pondering an Approach to Ken Lay
A Decision to Go Forward
Author’s Note
Notes
Essay 4: Resisting Corporate Corruption: The Enron Legacy
Tactical Lessons for Internal Resistance
Tactical Lessons for Taking Ethics Issues Outside the Firm
Implications for the Financial Crisis Cases
Essay 5: Underappreciated Origins of the Financial Crisis – A Personal Memoir
Jack Bennett Shakes Up Wall Street
Wall Street Restructures, Consolidates, and Innovates
Trading Dominates Banking and Client Relations Change
Prelude to Financial Crisis
Section 2: The Financial Crisis Cases
Part 1: New Business Models Undermine Standards and Controls
Case 1: Seeking a Sustainable Business Model at Goldman Sachs
Banking vs. Trading at Goldman Sachs
Competitive Pressures Change Wall Street’s Business Model
Embarrassment and Unprecedented Losses
Hank Paulson Decides on a ‘Counter to Corzine’
Author’s Note
Notes
Case 2: Juggling Public Policy, Politics and Profits at Fannie Mae
Origins of a Conflicted Government Entity
New Law, Politics and the ‘Housers’ Complicate Fannie Mae’s Mission
Reconciling Wall Street Performance and ‘Affordable Housing’
Beating Back the Privatizers
Wall Street Mounts an End Run, and Fannie Lowers its Standards
The Year 1998
Guidance for Franklin Raines
Author’s Note
Notes
Case 3: Should Countrywide Join the Subprime ‘Race to the Bottom?’
Nature and Structure of the U.S. Mortgage Business, 1940–85
Wall Street Develops Collateralized Mortgage Obligations (CMOs)
‘Subprime 1.0’ Temporarily Sobers the Market
Countrywide’s Strategy in the 1990s
AmeriQuest Launches a Subprime ‘Race to the Bottom’
Mozilo Reconsiders Countrywide’s Subprime Strategy
Author’s Note
Notes
Case 4: Subprime Heading South at Bear Stearns Asset Management
Hedge Funds Develop on Wall Street
Bear Stearns Forms its Own Hedge Funds
Mortgage Market Trends and HGF Disclosure
Financial Control Issues at HGF
Cioffi and Tannin Respond to Growing Pressures
February 2007: ELF Performance Turns Negative
Matthew Tannin Considers His Response to Barclays Bank
Author’s Note
Notes
Part 2: Consequences for Gatekeepers and Firms
Case 5: Ratings Integrity vs. Revenues at Moody’s Investors Services
RMBS/CDO Ratings: Kolchinsky Protests and is Transferred
Moody’s Becomes a NRSRO
Moody’s Culture Changes, and the Firm Goes Public
Subprime Mortgage Debt: The Ratings Methodology Challenge
The Subprime Market Begins to Unravel
Summer 2008 – Moody’s Prepares to Resume Ratings
Author’s Note
Notes
Case 6: Admission of Material Omission? Citigroup’s SIVs and Subprime Exposure
Citibank’s Subprime Product Flow and its SIVs
Citibank Structures and Launches Subprime SIVs
Citibank’s SIVs Finesse the VIE Rules
Conditions Worsen in the Mortgage and RMBS/CDO Markets
Citibank Reports Second Quarter Results
Third Quarter Events Hammer Citi’s Results
Considering Citi’s 3Q Results and IR’s Proposed Pre-Announcement
Author’s Note
Notes
Case 7: Facing Reputational Risk on Goldman’s ABACUS 2007-AC1
From Subprime RMBS to CDOs to SCDOs
Goldman’s Trading and its Clients, 2006–07
Fabrice Tourre Constructs ABACUS 2007-AC1
Tourre Prepares for the MCC ABACUS Review
Author’s Note
Notes
Case 8: Time to Drop the Hammer on AIG’s Controls?
Innovation and Controls on Wall Street
Management and Controls at AIG
Greenberg Takes a Fall for AIG’s ‘Cooked Books’
AIG-FP Confronts a Subprime Market Decline
FP Faces Collateral Calls on Subprime CDS
Ryan and PWC Approach a Decision
Author’s Note
Notes
Part 3: Financial Firms and Resisters
Case 9: Write to Rubin? – Pressure on Underwriting Standards at Citigroup
National City Bank Becomes a Giant Financial Conglomerate
Citi Demolishes Glass-Steagall
Organizational Challenges at Citigroup
Growth and Controls within Citigroup’s Mortgage Operations
Bowen Considers His Next Step – Write to Rubin?
Author’s Note
Notes
Case 10: Lehman Brothers Repo 105
Lehman Gets in Trouble
Repo 105 to the Rescue
Weighing Ethics, Career and Courses of Action
Author’s Note
Notes
Essay 6: Wall Street and the Crisis – Causes, Contributions and Problems to Fix
Section 3: The Post-Crisis Cases – Reforms, Resistance, Continuing Realities
Part 1: The Dodd-Frank Act: A primer
Case 1: Morgan Stanley Seeks a Sustainable Business Model after the Financial Crisis
John Mack Returns, Big Trading Comes to Morgan Stanley
Mack Guides Morgan Stanley into and Through the Financial Crisis
Mack Analyzes the Financial Crisis and Revamps MS Compensation
Mack Weights Strategic Alternatives for Morgan Stanley
Author’s Note
Notes
Case 2: Back to the Future on Goldman Sachs Reputational Risk
KMI Moves on El Paso
El Paso Reacts and Goldman Faces its Conflicts
The Business Standards Committee on Client Conflicts
Blankfein Considers Goldman’s Options to Manage its El Paso-KMI Conflicts
Author’s Note
Notes
Case 3: ‘Take Customer Cash to Survive?’ Compliance and Chaos at MF Global
Client Protections and Segregated Accounts
MF Global Courts an Illiquidity Crisis
Corzine ‘Bets the House’ on Euro Sovereign Debt
The Euro Sovereign Debt Crisis Hits
Markets Begin to Close in on MFGI
MFGI’s Final Week and a Decision on Segregated Accounts
Author’s Note
Notes
Case 4: Fix the LIBOR Fix?
LIBOR, its Fix Procedures, and Growth as a Global Benchmark
LIBOR Fixing Flaws and Incentives to Manipulate
London Banks Begin to Manipulate LIBOR Fixings
The Bank of England Learns LIBOR is Being Manipulated
The Financial Crisis Hits Barclays and LIBOR
Tucker Considers His Messages for Barclays
Author’s Note
Notes
Case 5: Too Big to Know What’s Going on at Banamex?
Oceanografía Defrauds Banamex
Managing the Global Financial Supermarket
Corbat Confronts the Banamex Scandal in a Post-Financial Crisis World
Author’s Note
Notes
Case 6: Take CitiMortgage to the Feds?
CitiMortgage Ignores FHA Procedures
Citi Fails to Fix its FHA Noncompliance Issues
Hunt Meets Her Attorney
Author’s Note
Notes
Case 7: Chipping Away at Dodd-Frank’s Volcker Rule?
Proprietary Trading, Market-Making and the Volcker Rule
What Happened in the Market?
Considering an SEC Response
Author’s Note
Notes
Essay 7: ‘And the Young Shall be Thrown Under the Bus’ – Lessons in Resisting Unethical Conduct from Enron Through the Financial Crisis
Essay 8: Resisting Corporate Corruption, 2017 – Improved Conditions, Unresolved Issues
Are the Reforms Enough? What Risks Remain Unaddressed?
Resisting Corporate Corruption – 2016
To Resist Corporate Corruption – One Thing Remains
A Note on Blogs and Law Firms
A Note on Sources
Index
The Financial Crisis Cases
The Post-Financial Crisis Cases
End User License Agreement
Guide
Cover
Copyright
Contents
Begin Reading
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