JPMorgan’s Troubles Compounded By SEC Investigation

The U.S. Securities and Exchange Commission has opened a preliminary investigation into JPMorgan Chase & Co. (NYSE:JPM) stemming from the disclosure Thursday that the bank could suffer a trading loss of up to $2 billion from risky bets.

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The SEC will be investigating JPMorgan’s accounting practices and public disclosures about trades. In particular, the inquiry will look at the activities and filings of an internal unit called the Chief Investment Office. The SEC will also likely look into the way JPMorgan assessed value-at-risk. Earlier this year, the company changed the way in which it measured value-at-risk, which may have allowed for greater undetected risk-taking. The company has since reverted to the previous method for measuring the risk metric.

Questions about the chief investment office unit arose in April after rumors that a trader in London was making large bets and creating distortion in the market. At the time, JPMorgan Chief Executive Officer Jamie Dimon dismissed the allegations. On Thursday, Dimon sang a different tune, saying that “egregious mistakes” were made.

This incident JP Morgan may also provide support for the Volcker rule, which would ban banks from betting with their own funds.

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