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Resisting Corporate Corruption, 3rd Edition by Stephen V. Arbogast

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Case 8Nowhere to Go with the ‘Probability of Ruin’

This is unbelievable, even worse than I thought. Even with only partial information, it’s unarguable that Enron sits under a huge overhang of debts. Many of these debts are not quantified and acknowledged. We need to get this study in front of a manager who will listen before something sets off the avalanche.

ON MARCH 7, 2001, VINCE KAMINSKI, ENRON’S TOP RISK ANALYST, received confirmation that the nightmare hovering over Enron was real. One year earlier, Kaminski had set in motion a study of Enron’s financial risks. Because of their complexity, any study of Enron’s financial operations had to cover more than debt levels and fixed charges. Trading exposures, customer credit risks, derivative positions, corporate guarantees, and Enron’s ties to off-balance sheet vehicles also had to be tracked down. Compiling this assessment had taken Kaminski’s team a full year. Even so, the information contained big gaps.

Still, the overall picture was clear. Enron had a staggering amount of debt, near-debt, and assorted financial commitments, much of which was lodged in structures that obscured their existence. Perhaps most disturbing, Enron’s top financial managers, the architects of this liability mountain, didn’t possess any sense of its cumulative size or risks; in fact, they not only didn’t know the situation, they apparently didn’t want to know it.

Kaminski’s plan was to confront this state of denial with an unassailable fact case, one ...

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