The SEC previously charged two former JPMorgan traders with committing fraud to hide the massive losses in one of the trading portfolios in the firm's chief investment office. The SEC's subsequent action against JPMorgan faults its internal controls for failing to ensure that the traders were properly valuing the portfolio, and its senior management for failing to inform the firm's audit committee about the severe breakdowns in CIO's internal controls.

According to the SEC's order instituting a settled administrative proceeding against JPMorgan, the Sarbanes-Oxley Act of 2002 established important requirements for public companies and their management regarding corporate governance and disclosure.

Public companies such as JPMorgan are required to create and maintain internal controls that provide investors with reasonable assurances that their financial statements are reliable, and ensure that senior management shares important information with key internal decision makers such as the board of directors, the SEC said.

The agency said JPMorgan failed to adhere to these requirements, and consequently misstated its financial results in public filings for the first quarter of 2012.

According to the SEC's order, in late April 2012 after the portfolio began to significantly decline in value, JPMorgan commissioned several internal reviews to assess, among other matters, the effectiveness of the CIO's internal controls, the SEC said.

From these reviews, senior management learned that the valuation control group within the CIO – whose function was to detect and prevent trader mismarking – was woefully ineffective and insufficiently independent from the traders it was supposed to police, the SEC said.

As JPMorgan senior management learned additional troubling facts about the state of affairs in the CIO, they failed to timely escalate and share that information with the firm's audit committee, according to the SEC.