Mismarking

Mismarking is deliberately recording the value of positions or portfolio assets away from what they are worth, to hide losses, inflate a fund's reported performance or raise pay and fees, without any trade in the open market.

Also called mis-marking, overvaluation scheme, inflating the book, P&L smoothing. Observed in swaps, futures, bonds, options, mortgages. One of the benchmark and cross-market manipulation techniques. 15 enforcement actions in the library.
Updated 2026-09-20

What is mismarking, and where is the line?

Every position a bank, trading firm or fund holds has to be given a value, usually every day. The value is the mark. It sets the desk’s reported profit and loss, the fund’s net asset value, the collateral a counterparty asks for, and often the bonus and the management fee. Mismarking is choosing that number to serve the holder rather than to approximate what the position is worth: hiding a loss, inflating performance, or moving profit from one period to another.

The defining feature is where the falsehood sits. In marking the close or settlement price manipulation, the manipulator trades so that a real, public price moves. In mismarking nothing has to trade. The number is typed into a system, or a model setting is altered, or a broker is asked to send a quote that matches. The people misled are the ones who rely on the figure, not the market at large.

That gives the technique its boundaries.

It is not price manipulation. No public price is falsified. Its relatives are ETF and NAV abuse, where someone else exploits a wrong valuation, and benchmark submission rigging, where a submitted number feeds a published rate. Mismarking is the wrong number itself, and its victims are usually the holder’s own employer, investors or lenders.

It is not honest disagreement about value. Illiquid assets have no observable price and reasonable valuers differ. The cases below involve marks set to serve the holder, support that was steered or invented, or a price the holder had no basis to believe was achievable.

It is not the Regulation SHO sense of the word. Under Regulation SHO a broker or dealer must mark every equity sell order as long, short or short exempt, and Rule 200(g) says when an order may be marked long. Labelling a short sale as long is sometimes called mismarking too. It is a defect in the status of an order; this page is about the value of an asset. The library does not tag order-marking cases as mismarking.

It is not the same thing as the London Whale trading. The best-known episode, JPMorgan’s Chief Investment Office in 2012, is often described as mismarking. The CFTC’s order did not find that. It is discussed below because the difference matters.

How does mismarking work?

1. A position loses value, or a book needs to look better. The motive in the record is concealing losses, earning a larger performance bonus, or raising fees charged on inflated returns.
2. The holder chooses the number. Where a price is observable, a mark can only drift so far. Where it is not, as with long-dated structured notes, thinly traded bonds or model-valued swaps, the holder has room. The record shows marks entered by hand, model settings such as discount curves and day-count conventions altered, credit spreads used that were a multiple of those on the underlying hedges, and small markups spread across many positions.
3. The number is made to survive a check. Firms test marks against independent prices within a tolerance band. The record shows marks kept inside such bands, dealer quotes solicited to match a chosen figure, sham broker quotes, a pricing vendor fed prices it would republish, and the historical valuation file edited after the fact.
4. The figure is reported. It becomes profit and loss or a fund’s NAV, is sent to counterparties and lenders, and is used to calculate fees.
5. Someone pays for the gap. Purchasers and redeemers transact at a wrong NAV, lenders advance more than the assets support, and employers book profit that does not exist.

What law applies to mismarking?

There is no statute called mismarking. Regulators use the general provisions and choose them according to whom they charge and what they can show.

Anti-fraud provisions are used against the person who marked. The CFTC has charged fraud under section 6(c)(1) of the Commodity Exchange Act and Regulation 180.1, which covers use of a manipulative device or a scheme to defraud in connection with a swap or futures contract. The SEC uses Rule 10b-5 and the Advisers Act anti-fraud sections where the marks inflated a fund’s reported value and the fees charged on it.

Books-and-records and supervision provisions are used against firms. In the Citigroup order the SEC found that inaccurate marks made the broker-dealer’s ledgers inaccurate under Exchange Act section 17(a) and Rule 17a-3, and found a failure reasonably to supervise. That is a different charge from fraud and does not require finding that the firm meant to deceive.

Pricing and disclosure provisions reach funds. Rule 22c-1 requires open-end funds to transact at a price based on current net asset value, so an overstated NAV is itself a violation of that rule.

What do the real cases show?

Which real enforcement actions have alleged mismarking?

This library holds 15 enforcement actions tagged mismarking. The table shows the largest by civil penalty together with the most recently filed. Every row links to a page carrying the regulator's own release and, where one was published, the complaint.

All 15mismarkingactions →

Fifteen records in this library carry the mismarking tag, as of 2026-09-20. They fall into two kinds, and the difference between them is the most important thing this page can say. A sixteenth matter, the CFTC’s JPMorgan order, is discussed below as a boundary case and is not tagged mismarking.

The person who marked is charged with fraud. These are the clearest cases. A CFTC consent order found that a Citigroup director entered false end-of-day values for ethanol futures over about a year, causing a stated loss of about $42.4 million to Citi (Brooks, 2014). A former Deutsche Bank managing director was found to have mismarked inflation swaps to hide estimated losses of more than $16 million, and then to have altered earlier versions of the spreadsheet; the bank self-reported and received a CFTC declination (2018). A hedge fund portfolio manager was found to have altered model settings to raise the book’s profit and earn a bonus, and was ordered to disgorge a $600,000 bonus (2019). The CFTC filed a complaint against a natural gas head trader alleging inflated marks that hid losses later realised at more than $100 million (2019); the library records that matter as filed. On the SEC side, two hedge fund managers used sham broker quotes to mismark as many as 28 securities a month for 18 months; one was convicted after trial (Lumiere). Live Well Financial was charged over inflated bond prices submitted to a pricing service and relied on by lenders (2019), and Infinity Q’s adviser over a scheme said to have inflated fund NAVs from 2017 to 2021 (2023). Several of these are settled or consent orders, so they are not findings after a contest.

The firm or its officers are charged for the controls, not the marks. The Citigroup order concerns three traders on different desks, but its charges are books and records and failure to supervise, and it records that the firm found and reported the mismarks itself (2018). The CFTC’s 2022 order charged a swap dealer, Natixis, with failing to supervise valuation on two desks; it found one trader marked a curve away from broker prices to overstate profit by about $25 million at the peak (2022). Semper Capital was found to have caused an overvalued NAV by relying on vendor marks for small bond lots it had no reasonable basis to think were achievable, and to have made incomplete disclosure; the order does not describe deliberate marking (2020). The Infinity Q mutual fund was charged under Rule 22c-1 and its chief risk officer for alleged negligent misstatements (fund, officer). Each was charged with what the firm or officer did or failed to do.

A boundary case that is not about marks. The CFTC’s JPMorgan order (2013) is often described as mismarking, and the library once tagged it so, but it is a trading finding and is now recorded as price manipulation.

What did the CFTC actually find about the London Whale trades?

The order found that on 29 February 2012, JPMorgan’s traders recklessly employed a manipulative device in connection with swaps, in violation of section 6(c)(1) and Regulation 180.1. The device was selling: net sales of about $7 billion of one credit index in a concentrated period, far larger than the desk had ever traded in a day, timed just before the month-end price-testing of the desk’s marks. The order says the sales fell within the prohibition because they were designed to defend the position. JPMorgan admitted the specified factual findings, including that its traders acted recklessly, and paid a $100 million civil penalty. The order’s language is explicit: it uses the words “manipulative device”.

The mismarking accusation appears elsewhere. A footnote records that two former traders were accused, in a criminal case and an SEC action, of mismarking the portfolio to deceive others at the bank, and says the order’s finding was consistent with a scheme to mis-mark. The CFTC did not charge that conduct. Its undertakings included controls to detect mis-marking of the bank’s books.

So the two ends of the story are not “mismarking versus mismarking”. One is a mark set away from value with no trade needed; the other is real trading that pushed a real price, to protect what the marks would show. Only the first fits the definition above.

What the record does not show

This library holds what regulators announced and what it has collected, with known gaps. Its fifteen records say nothing about how common mismarking is. Money fields are extracted mechanically and can be incomplete. Outcomes for matters recorded as filed are not stated.

How is mismarking detected?

Independent price verification. A group separate from the desk tests marks against vendor or dealer prices. The Citigroup order shows why it fails: verification of hard-to-value positions was thin, and a spreadsheet error in one desk’s testing understated the effect of a volatility variance by a factor of 100 for over two years.

Discovery when someone else looks. In the Citigroup order, two mismarks came to light while the trader was away, on mandatory leave and before a vacation, when a junior trader took over the book; a third when a supervisor’s indicative bid to a counterparty differed from the trader’s mark and the counterparty challenged the mark.

Self-reporting. The Deutsche Bank matter was found by the bank’s own compliance programme and reported.

• Marks that sit persistently on one side of independent prices, in the direction that flatters the desk.
• Marks that stay just inside the tolerance band of the valuation control group rather than scattering around the independent price.
• Markups that appear on the days the same book takes losses elsewhere, offsetting them.
• Quotes offered as support that come from a small set of brokers, or that trace back to the person whose mark is being tested.
• Valuation model settings, such as curves or day-count conventions, that differ from policy and favour the book.
• Edits to historical versions of valuation spreadsheets.

What penalties does mismarking actually attract?

The numbers below are computed from this site's own case records at build time, not quoted from a secondary source. They change whenever a new action is added to the library.

What are the red flags?

• A fund whose reported returns are unusually smooth or unusually high while its holdings rarely trade.
• A manager who is involved in choosing the prices used to value his own fund.
• Valuation described as independent where the pricing source can be steered by the manager.
• Lenders or counterparties whose own price for a position differs sharply from the holder's mark.

Frequently asked questions about mismarking

What techniques are related to mismarking?

• ETF and NAV abuse — ETF and NAV abuse exploits a fund's valuation of illiquid or stale-priced holdings, creating or redeeming shares at a ratio that transfers value from the investors who remain in the fund.
• Marking the close — Marking the close is trading in the final minutes of a session specifically to move the closing price, which is the price that sets portfolio valuations, margin calls, index levels and derivative settlements.
• Settlement price manipulation — Settlement price manipulation is trading to move an official settlement price, because that price determines margin, portfolio marks and the payoff on contracts many times larger than the trading itself.
• Benchmark submission rigging — Benchmark submission rigging is skewing the figures a panel member reports into a reference rate calculation, so that the published benchmark moves in favour of positions that settle against it.

Terms defined on this page

Mismarking Term · Independent Price Verification · Level 3 Asset · Mark To Market · Marking To Model · Net Asset Value · Control Failure

Sources

1. CFTC press release 6737-13 (JPMorgan Chase Bank, N.A.) — U.S. Commodity Futures Trading Commission
2. CFTC order, In the Matter of JPMorgan Chase Bank, N.A. — U.S. Commodity Futures Trading Commission
3. CFTC press release 6970-14 (Brooks) — U.S. Commodity Futures Trading Commission
4. CFTC press release 7979-19 (former hedge fund portfolio manager) — U.S. Commodity Futures Trading Commission
5. CFTC press release 8581-22 (Natixis) — U.S. Commodity Futures Trading Commission
6. SEC order, Citigroup Global Markets Inc. and Citigroup Inc. (34-83859) — U.S. Securities and Exchange Commission
7. SEC litigation release 25750 (Infinity Q Capital Management) — U.S. Securities and Exchange Commission
8. Regulation SHO, 17 C.F.R. § 242.200 — order marking — Cornell Legal Information Institute

Reviewed September 20, 2026. Every statute link points at the primary text. If something here is wrong, tell us — corrections are logged in public.