The investigation into abusive trading in the mutual fund industry is proving a bigger problem than ever suspected at J.B. Oxford ( JBOH), a Los Angeles-based brokerage. The company, in its 2003 annual report, said its ability to continue operating as a "going concern" could be compromised by the outcome of a regulatory and criminal investigation into the firm's role in the far-reaching trading scandal. In November, regulators at the Securities and Exchange Commission notified J.B. Oxford that the firm was facing a possible enforcement action for its role in clearing and processing trades for several brokerage firms that may have engaged in improper trading of mutual fund shares. Best known for its online brokerage division, J.B. Oxford generates roughly 18% of its $19 million in annual revenue from providing clearing services. Last September, New York Attorney General Eliot Spitzer alleged that J.B. Oxford processed some illegal mutual fund trades for Canary Capital Partners. Spitzer's $40 million settlement with Canary launched the sprawling investigation of the mutual fund industry. The company continues to say it is cooperating with the investigation and hopes to settle the matter over allegations of illegal late trading. But in its latest filing, J.B. Oxford, which has lost a little more than $20 million the past three years, paints a dire picture of the situation it finds itself in. "Should the outcome or judgment against the company from the SEC proceedings related to the ongoing mutual fund investigations be significant, the demand for payment from such outcome or judgment coupled with the company's deteriorating financial results may cause substantial doubt regarding the company's ability to meet its obligations as they become due," the filing says. The firm says the scandal could tarnish its reputation and drive away existing customers who process and execute their trades through J.B. Oxford's clearing. In the worst-case scenario, the company said, it could be forced to file for bankruptcy protection, if the scandal makes it impossible to find financing to continue its operations.