Yasuo Hamanaka, the man behind the Sumitomo copper affair with losses over $2.6 billion

Yasuo HamanakaPhoto by ota_photos

Yasuo Hamanaka was the chief copper trader at Sumitomo Corporation, one of the largest trading companies in Japan. He was known as “Mr. Copper” because of his aggressive trading style, and as “Mr. Five Percent” because that is how much of the world’s yearly supply he controlled.

On June 13, 1996, Sumitomo Corporation reported a loss of US$1.8 billion in unauthorized copper trading by Yasuo Hamanaka on the London Metal Exchange.

In September 1996, Sumitomo disclosed that the company’s financial losses were much higher at $2.6 billion (approximately 280 billion yen).

Yasuo Hamanaka was sentenced to eight years in prison in 1998 and was released in July 2005, one year early.

The Sumitomo copper affair

The Sumitomo copper affair refers to the metal trading scandal in 1995 involving Yasuo Hamanaka, the chief copper trader of the Japanese trading house . Hamanaka allegedly attempted to corner the entire world’s copper market.

Sumitomo owned large amounts of physical copper, copper sitting in warehouses and factories, as well as holding numerous futures contracts. Hamanaka used Sumitomo’s size and large cash reserves to both corner and squeeze the market via the London Metal Exchange (LME). As the world’s biggest metal exchange, the LME copper price essentially dictated the world copper price. Hamanaka kept this price artificially high for nearly a decade leading up to 1995, thus getting premium profits on the sale of Sumitomo’s physical assets.

Sumitomo lost at least $1.8 billion as a result of what it said were unauthorized trades over a 10-year period by Yasuo Hamanaka, who was later charged on allegations that he manipulated the price of the metal, which then lost a third of its value on world markets in less than two months.

The affair was a major scandal which is at times compared in magnitude to the Silver Thursday scandal, involving the Hunt family’s attempt to corner the world’s silver markets.

Through the investigative reporting by the Financial Times, it became clear that Yasuo Hamanaka, unlike Nick Leeson of Barings, was not a poorly supervised employee using his company’s money to gamble on unpredictable markets. On the contrary, there is evidence that he was implementing a deliberate corporate strategy of “cornering” the world copper market – a strategy that worked, yielding huge profits, for a number of years.

In may, 1998, the CFTC filed and settled an action against Sumitomo Corporation for manipulating the copper market during 1995-1996, asking for $150 million in fines and by asking the company to Cease And Desist from further violations.

 

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