Ex-Sumitomo Copper Trader Arrested
Sumitomo Corp.’s one-time star copper trader, Yasuo Hamanaka, was arrested Tuesday on charges of document forgery in connection with a trading scandal that cost his employer an estimated $2.6 billion in losses.
It was the first official action against Hamanaka since he was fired in June, when Sumitomo disclosed that it had suffered huge losses from what it described as unauthorized trades by Hamanaka over a period of about 10 years.
Investigators from the Tokyo prosecutor’s office also raided Hamanaka’s suburban Tokyo home in search of additional evidence in the case. The police acted a day after the giant Japanese trading company filed a formal complaint accusing Hamanaka, 48, of forgery.
The forgery charge goes directly to one of the key issues in the spectacular case--whether anyone else at Sumitomo was involved in the long-running deceit. Analysts have said that Hamanaka’s actions appeared aimed at making profit by manipulating the global copper market, and voiced doubts that he could have acted alone on such a scale for so long.
But Sumitomo said Tuesday that the names of three other executives that surfaced in the probe had all been forged by Hamanaka. The company stressed that an internal investigation had found no evidence that anyone else in the firm had been involved.
“Basically he did it all on his own,” said Sumitomo managing director Naoki Kuroda. He added that Sumitomo plans to file an additional complaint for breach of trust against Hamanaka.
Sumitomo executives also said they had no evidence that Hamanaka tried to manipulate the global copper market. During his years of prominence as a highly respected trader, Hamanaka acquired the nickname “Mr. Five Percent,” a reference to the belief that he controlled 5% of world copper supplies.
The company has previously said Hamanaka’s increasingly desperate trading activities were apparently designed to recoup or cover up trading losses from the mid-1980s. Allegations that Hamanaka had tried to fake trading records first emerged as long as five years ago, but the company took no action against him until June.
Hamanaka, who had remained virtually out of sight since the scandal erupted, has told reporters only that he would give his side of the story in the future. Meanwhile, the case remains under investigation in the United States and Britain.
At a minimum, the scandal has tarnished Sumitomo’s image, raised serious concerns about its internal controls and prompted broader questions about the regulation of trading practices on the world’s commodity exchanges.
Both Merrill Lynch & Co. and Credit Lyonnais Rouse, the commodity trading arm of France’s Credit Lyonnais bank, have stated that superiors of Hamanaka authorized his trading accounts at their firms, which have seats on the London Metal Exchange. A key issue is whether Hamanaka faked that approval.
The Tokyo prosecutors office said Hamanaka was arrested on suspicion of forging the signatures of at least three Sumitomo executives on documents relating to his trading activities.
In one case in 1994, he allegedly forged signatures of a Sumitomo metals department director and a higher executive on a metal trading contract with a Merrill Lynch subsidiary. Later that year, he allegedly forged another executive’s signature on other contracts, also involving Merrill Lynch subsidiaries, prosecutors said.
Last month, Sumitomo said it suspected that Saburo Shimizu, who worked with Hamanaka until resigning in 1988, may have helped Hamanaka make unauthorized trades, and that it might file a complaint against him. But Kuroda said Tuesday that the firm does not have evidence of involvement by anyone but Hamanaka, and that it does not plan to press charges against Shimizu.
Investigations into the scandal, which in terms of money lost is one of the worst ever, are being carried out in the U.S. by the Commodity Futures Trading Commission.
