Mary Schapiro, chairman of the Securities and Exchange Commission, said last month the agency is probing JPMorgan’s financial reporting after a failed hedge strategy led to a $2 billion loss. Experts say the best chance to bring an enforcement action will center on whether the bank should have disclosed sooner that it switched to a new risk model. But that, the experts say, could be difficult to prove. To bring a case, the SEC will have to decide if failing to disclose the switch to a model that cut the value-at-risk number from $129 million to $67 million is significant to a reasonable investor. “It may look bad and it may smell rotten, but it is not obvious that switch would have greatly misled the market or greatly influenced the stock price,” said Lawrence Cunningham, a law professor at George Washington University.

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