JPMorgan’s CEO just violated a federal statute carrying a prison sentence. But will the punishment fit the crime?

The law in question that Jamie Dimon violated, by his own admission, can be found in Section 906 of the Sarbanes-Oxley Act. In the aftermath of the 2001 financial crisis, when corporations like Enron and WorldCom melted down in accounting scandals, Congress passed and George W. Bush signed Sarbanes-Oxley, meant to reform corporate accounting and protect investors through additional disclosures.

Section 906 forces corporate CEOs and CFOs (chief financial officers) to add a written certification to every periodic financial statement filed with the Securities and Exchange Commission. In this certification, the CEO and CFO must personally attest that the documents submitted to the SEC are accurate, as well as that the corporation has adequate internal controls. That phrase “internal controls” has a very specific meaning, covering the accuracy of all financial reporting, proper risk management, and compliance with all applicable regulations. Under Section 906, if the CEO or CFO knowingly or willfully make false certifications – i.e., if they know the SEC filing contains inaccurate information, or that the company’s internal controls are inadequate – they face fines of up to $5 million, and imprisonment of up to 20 years.

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