We present H-Node Adversarial Noise Cancellation (H-Node ANC), a mechanistic framework that identifies, exploits, and defends hallucination representations in transformer-based large language models (LLMs) at the level of individual hidden-state dimensions. A logistic regression probe trained on last-token hidden states localizes hallucination signal to a small set of high-variance dimensions -- termed Hallucination Nodes (H-Nodes) -- with probe AUC reaching 0.90 across four architectures. A white-box adversarial attack amplifies these dimensions at inference time via a real-time forward hook, achieving a selectivity of 3.02x with less than 10% visibility to the defender. Adaptive ANC defense suppresses H-Node excess in-pass using confidence-weighted cancellation, reducing grounded activation drift by 33-42% over static cancellation. A dynamic iterative extension that re-ranks cancellation targets across successive passes recovers up to 0.69 robustness from a single-pass baseline of 8%. All contributions are validated on OPT-125M, Phi-3-mini-4k-instruct, LLaMA-3-8B-Instruct, and Mistral-7B-Instruct-v0.3 (125M-8B parameters). Perplexity impact is surgical (<5%) and MMLU degradation is at most 3%, confirming that the defense does not impair general reasoning capability.

Although large language models (LLMs) are increasingly used in security-critical workflows, practitioners lack quantitative guidance on which safeguards are worth deploying. This paper introduces a decision-oriented framework and reproducible methodology that together quantify residual risk, convert adversarial probe outcomes into financial risk estimates and return-on-control (RoC) metrics, and enable monetary comparison of layered defenses for LLM-based systems. A retrieval-augmented generation (RAG) service is instantiated using the DeepSeek-R1 model over a corpus containing synthetic personally identifiable information (PII), and subjected to automated attacks with Garak across five vulnerability classes: PII leakage, latent context injection, prompt injection, adversarial attack generation, and divergence. For each (vulnerability, control) pair, attack success probabilities are estimated via Laplace's Rule of Succession and combined with loss triangle distributions, calibrated from public breach-cost data, in 10,000-run Monte Carlo simulations to produce loss exceedance curves and expected losses. Three widely used mitigations, attribute-based access control (ABAC); named entity recognition (NER) redaction using Microsoft Presidio; and NeMo Guardrails, are then compared to a baseline RAG configuration. The baseline system exhibits very high attack success rates (>= 0.98 for PII, latent injection, and prompt injection), yielding a total simulated expected loss of $313k per attack scenario. ABAC collapses success probabilities for PII and prompt-related attacks to near zero and reduces the total expected loss by ~94%, achieving an RoC of 9.83. NER redaction likewise eliminates PII leakage and attains an RoC of 5.97, while NeMo Guardrails provides only marginal benefit (RoC of 0.05).