Banking regulators have reportedly cautioned federal prosecutors that a criminal case against JPMorgan Chase would trigger a review of its banking charter. While such a review would be worrisome, that's not the half of it.

A successful prosecution of JPMorgan would also throw into disarray the bank's substantial and highly lucrative asset management business.

JPMorgan manages $1.4 trillion in 142 mutual funds that are registered under the Investment Company Act of 1940. The fees related to these funds range from 45 basis points to 2.34% for A shares. Fees on the highest cost C shares range from 97 basis points to 2.84%.

The feds have been investigating the bank for everything from its relationship with Bernard Madoff to the London Whale trading debacle to manipulating the California market for electricity to the sale of toxic mortgage-backed securities. A $13 billion settlement in the latter case left the bank exposed to the possibility of criminal charges. An often-overlooked provision of the Investment Company Act could bite JPMorgan if the firm (which declined comment for this post) were to be convicted in any of these matters.

Section 9, entitled “Ineligibility of Certain Affiliated Persons and Underwriters,” provides that a person convicted of a felony or misdemeanor related to securities or mutual funds is ineligible to serve as an investment advisor to a mutual fund.

For those who are not familiar with mutual fund history, the application of this provision contributed to the demise of at least one major mutual fund player. Soon after E.F. Hutton pled guilty to check kiting (a felony) in the mid-1980s, lawyers representing the firm went running to the Securities and Exchange Commission in Washington seeking emergency relief from the provisions of Section 9 of the Investment Company Act. For me as a young SEC lawyer at the time, it was high drama in the then-sleepy world of mutual fund regulation.

Technically Hutton was no longer eligible under the Act to manage the billions in its mutual funds. The funds were in limbo without a manager unless the SEC granted Hutton an exemption from the statutory prohibition. Hutton did get a permanent exemption from the SEC, but the firm's days were numbered. In 1987, Hutton agreed to merge with Shearson Lehman.

If convicted in a criminal case, JPMorgan too would become ineligible under Section 9 to continue managing its funds, barring a similar exemption. Those $1.4 trillion of mutual funds would become orphaned like Hutton's were.

Such a chaotic scenario is yet one more reason the government is unlikely to prosecute the bank.

Edward Siedle is the president of Benchmark Financial Services, an Ocean Ridge, Fla., firm that investigates money management abuses primarily on behalf of pensions. He is a former SEC attorney and later served as legal counsel and director of Compliance at Putnam Investments.