Resisting Corporate Corruption: Cases in Practical Ethics From Enron Through The Financial Crisis

Presents real-world case studies exploring the complex challenges that cause ethical failures and the means available to overcome them with integrity. Resisting Corporate Corruption teaches business ethics in a manner very different from the conceptual and legal frameworks that dominate graduate schools. The book offers twenty-seven case studies and eleven essays that cover a full range of business practice, controls, and ethics issues. The cases are framed to instruct students in early identification of ethics issues, and how to work such problems effectively within corporate organizations. By pursuing these case studies, students should emerge with a practical toolkit that better enables them to follow their moral compass. The cases provide examples of how executives can embed more ethical approaches inside alternative business strategies, redirect pressure and intimidation to parties better positioned to resist, and use the firm's controls structure to counteract corrupt practices. Specific cases take up the circumstances of whistleblowers and the changing protections afforded by recent laws. Fourteen case studies examine Enron's crossing of various ethical lines from 1987–2001. Thirteen new cases examine key financial crisis moments at Countrywide, Fannie Mae, Citibank, Goldman Sachs, Moody's, Lehman Brothers, and PricewaterhouseCoopers. Interpretive essays discuss the nature of sound financial controls systems and the extent to which the financial crisis shows Enron's issues to be unresolved. Changes made to the Second Edition The first edition was published in 2008 and consisted of Enron case studies only. The Second Edition has fewer Enron case studies and includes new financial case studies. Moreover, the lessons learnt, or not learnt, from Enron as well as post-Enron regulations, can be scrutinized as to what effect, if any, they had on the unfolding of the Great Recession. Readership The book has many audiences, including: Business schools and MBA students, especially those with finance concentration Law schools and those doing Continuing Legal Education (CLE) Corporate heads of audit, controllers, and legal compliance officers Business leaders, especially those heading financial and large corporations Seminaries and other institutions offering business ethics courses

Acknowledgements vii Preface ix Note to Faculty:How to Use this Book xvii Case Study 1 Enron Oil Trading (A):  Untimely Problems from Valhalla (A) 5 Essay 1 How to do an Ethics Case Study:  Key Steps in Tactical Planning 21 Case Study 2 Enron Oil Trading (B): The Future of Enron InternalAudit 37 Case Study 3 Enron Oil Trading (C): An Opening for EnronAudit? 49 Case Study 4 Enter Mark–to–Market (A): ExitAccounting Integrity? 53 Case Study 5 Enter Mark–to–Market (B): Accounting & theAggressive Client 71 Essay 2 NecessaryAmmunition— The Economic Rationale for Financial Control 81 Case Study 6 Enter Mark–to–Market (C): The Disease Spreads to Enron Clean Fuels 107 Case Study 7 Adjusting the Forward Curve in the Back Room (A) 115 Case Study 8 Enron’s SPE’s:AVehicle too Far? 127 Case Study 9 Court Date Coming in California 149 Case Study 10 Jeff Skilling and LJM (A): The “Shoot the Moon” Meeting 169 Case Study 11 New Counsel forAndy Fastow (A) 189 Case Study 12 Nowhere to Go with “The Probability of Ruin” 205 Case Study 13 Lay Back … and Say What? 227 Case Study 14 “Whistleblowing” before implodingin Accounting Scandals 249 Essay 3 Legacy and Lessons of Enron: Forerunner of the Financial Crisis? 271 Essay 4 Resisting Corporate Corruption: Tactical Lessons from the Enron Cases 279 Essay 5 Underappreciated Origins of the Financial Crisis:APersonal Memoir 289 Case Study 1 Should Countrywide Join The Subprime Mortgage “Race to the Bottom?” 311 Case Study 2 Seeking a Sustainable Business Model at Goldman Sachs 337 Case Study 3 Juggling Public Policy, Politics and Profits at Fannie Mae (A) 357 Case Study 4 Sub–Prime Heading South at Bear StearnsAsset Management 383 Case Study 5 Ratings Integrity vs. Revenues at Moody’s Investors Service 409 Case Study 6 Juggling Public Policy, Politics and Profits at Fannie Mae (B) 437 Case Study 7 Admission of Material Omission? Citibank’s SIVs and Sub–Prime Exposure 461 Case Study 8 Facing Reputational Risk on Goldman’sABACUS 2007–AC1 487 Case Study 9 Time to “Drop the Hammer”on AIG’s Controls? 505 Case Study 10 Write to Rubin? – Pressure on Underwriting Standards at Citigroup 533 Case Study 11 Wean Lehman Brothers off “Repo 105”? 559 Case Study 12 Time to Report Moody’s to the SEC? 575 Case Study 13 Take CitiMortgage to the Feds? 595 Essay 6 Chronic Crises, Systematic Breakdowns, Emerging Resistance and The Implications for Teaching Business Ethics 613 A Note on Sources 629 Index

Stephen V. Arbogast served from 1999–2004 as the treasurer of Exxon Mobil Chemical Company and has over thirty years of experience in finance working with Exxon Corporation and Exxon Mobil Chemical. While treasurer of chemicals, he held positions that included director of Qenos (Australia's sole manufacturer of polyethylene, a joint venture with Orica PLC), director of Dexco (a joint venture with Dow Chemical), and director of Al Jubai Petrochemical Company in Saudi Arabia. Currently serving as an Executive Professor of Finance at the C.T. Bauer College of Business, Professor Arbogast's teaching career has focused on international finance, project financing, and business ethics. In addition to authoring over fifty case studies based on his experiences at Exxon Mobil, he has previously taught at both Fordham University's Graduate School of Business in New York and Rice University's Jesse Jones Graduate School of Management in Houston.

“I highly recommend the essential and landmark book Resisting Corporate Corruption: Cases in Practical Ethics From Enron Through The Financial Crisis by Stephen V. Arbogast, to any students and faculty in graduate or undergraduate business course, law schools, top corporate executives, business leaders at all levels and sizes of companies, public sector decision makers, and students and faculty at any other organizations or schools offering business ethics instruction seeking a comprehensive and decision making based book through the medium of case studies. This book provides the background and the skill set to guide students and business leaders toward more ethical decision making in any industry."  ( Blog Business World , 29 May 2013)