The correct answer is B. Management failed to investigate high levels of reported profits even though they were associated with a low-risk trading strategy. This is because Nick Leeson, a trader at Barings Bank, was supposed to be running a low-risk arbitrage business, but instead, he was investing in large speculative positions in Japanese stocks and interest rate futures and options. When he fraudulently reported substantial profits on these high-risk positions, the bank's management did not investigate the unusually high profits, which should have been a red flag given the supposed low-risk nature of the trading strategy. This lack of oversight and failure to question the reported profits allowed Leeson's unauthorized trading to continue unchecked, ultimately leading to the collapse of Barings Bank after incurring over USD 1 billion in losses.