Britain Likely to Step Up Inquiries

The pace of Britain’s inquiry into the possibility of fraud in world copper markets can be expected to accelerate this week.

Sources close to the investigations, still in their early stages, said that the focus has been on whether fallen Sumitomo Corp. copper trader Yasuo Hamanaka did anything wrong that Britain would have jurisdiction over and, if so, whether he might have had any accomplices.

It seems unlikely, however, according to a report appearing Sunday in the British weekly newspaper Observer, that the British Serious Fraud Office is considering yet whether to extradite Hamanaka, the Observer reported.

In addition, it appears that it may be several weeks before the SFO decides whether it has turned up evidence of any criminal wrongdoing in the London metals market, the hub of the world copper trading, of a sort that would warrant moving from a preliminary to a full investigation.

The investigation springs from what Sumitomo Corp. of Japan says are losses of $1.8 billion run up by Hamanaka, once its star metals trader. Hamanaka has since been fired. He is alleged to have concealed 10 years’ worth of unauthorized trades.

Last week, debate flared in the metals business about how much others at Sumitomo might have known about Hamanaka’s huge market plays. Hamanaka’s whereabouts remain unknown.

Other traders say Sumitomo may have to disclose more details before it can dispel the inevitable speculation that Hamanaka may simply be being made a scapegoat for aspects of a trading strategy others had approved.

“Did he confess or was he blamed?” asked one Western senior dealer in copper.

The question arises because the firm once lauded Hamanaka’s prowess. And traders say it would be absurd to suggest that he alone would be responsible for a huge volume of copper trading. Sumitomo’s copper trading in 1995, for instance, was said to be worth almost $9.5 billion.

“Hamanaka was a star because he generated enough profits in London Metal Exchange trading to make up losses on physical business,” another Western metals executive said.

Dealers said that Hamanaka’s strategy appears to have been based on hoarding stocks to be able to control prices and on complex deals in derivatives that were linked to these.

As long ago as 1988, the International Wrought Copper Council trade group told the LME that one firm that was withholding copper was “treading a very thin line between technical squeeze and deliberate manipulation.”