How a UK inspector halted the progress of the maverick trader who took Sumitomo for $1.8bn

The Serious Fraud Office is to investigate the $1.8bn (pounds 1.2bn) loss resulting from unauthorised trading at the Japanese Sumitomo Corporation, the world's largest copper dealer.

The SFO, which investigates major fraud in Britain, has taken on the case together with the City of London Police. It will be co-operating with London's Securities and Investments Board, whose original investigation unearthed the losses which were run up over a period of 10 years.

The scale of the losses eclipse even Nick Leeson's pounds 830m of losses at Barings and the $1.1bn lost by Daiwa Bank last year from unauthorised bond trading by Toshihide Iguchi, one of its executives in the US.

Uncovering the scandal represents a coup for the Securities and Investments Board in London. The SIB has been tracking the affair for more than six months with a team led by Jeremy Orme, the SIB's enforecement division.

The SIB, together with the London Metals Exchange, had become concerned about the wild fluctuations in the copper price. On Thursday only hours before Sumitomo broke the news about its problems, David King, Chief executive of the LME, said: "We don't believe that minipulation is taking place. We have carried out inquiries and are looking at the issues on an on-going basis."

As copper prices plunged yesterday, there were fears that other copper traders might face financial difficulties. The three-month copper price closed $175 down yesterday at $1,980 per tonne

It was unclear yesterday whether or not Sumitomo had closed its trading positions. Dealings in Sumitomo's shares were suspended in Tokyo yesterday, however the scandal is unlikely to result in the collapse of the company which is one of the largest in the world with assets of around $50bn.

Copper dealers said Sumitomo's losses could eventually reach $2.5bn: "The copper market will remain extremely volatile," one dealer said.

In a shame-faced press conference in Tokyo, Sumitomo's president Tomiichi Akiyama placed the entire blame for the scandal on 48-year old Yasuo Hamanaka, the former head of trading who was dismissed on Thursday.

"We deeply regret - and are profoundly embarrassed by - these sever violations of our company's business policies," he said. "I am overwhelmed with shame." Later he added that Mr Hakahama had carried out the trades on his own initiative. "It wasn't discovered for 10 years because of a highly skilled cover-up operation."

However, other copper experts are certain Mr Hamanaka was acting in concert with others. "There must have been people in the London market who knew what he was doing," one expert said.

One metals analyst agreed: "He must have been booking fake trades and rolling them over. There has to have been collusion."

The trail to the epic fraud began with the Securities and Investments Board, the City regulatory authority. Together with the London Metals Exchange it had become concerned later last year about the volatility of the copper price. Certain rumours in the market had also given cause for alarm.

One of the anomalies Mr Orme at the SIB focused on was the causes of backwardisation in the copper price. This is when the immediate (cash) price of the commodity is higher than the futures price. This is unusual with copper due to the cost of warehousing and insuring the metal. Normally the cash price is lower.

A further problem for the investigators was that much of the metals trading in London operates outside of the Exchanges jurisdiction. Market professionals use the base price of copper as guidance but conduct deals on their own account. It is one of the few markets left with this relatively low level of regulation.

SIB mounted an investigation under Section 105 of the Financial Services Act which enable them to take evidence from clients and official sources.

The trail led to Mr Hamanaka, known as "Mr Five per Cent" because of the huge proportion of the world copper market he controlled. During a 26 year career he had built up a reputation as a skilled and aggressive trader.

Based in Tokyo but conducting many of the deals through London and New York, Mr Hamanaka controlled a team of up to seven copper traders but saw himself as very much "the main man". He had a reputation for taking long positions on copper.

Late last year, Britain's Securities and Investment Bureau (SIB) and its American counterpart, the Commodities Futures Trading Commission (CFTC) began to examine fluctuating copper prices and it was during this investigation, according to Sumitomo, that Mr Hamanaka's subterfuge was uncovered. Last month, he was demoted from his position as head of copper trading after suspicions that he allowed a company outsider to use Sumitomo's name in a copper trading account. The mere hint that he might be on the way out was enough to drive down copper prices.

Further investigation by Sumitomo revealed a hitherto unknown bank account held in the company's name which had apparently been used to fund secret and unauthorised trades on copper futures and options. According to the Corporation, aware that he was about to be unmasked, Mr Hamanaka confessed to his activities on 5 June.

He had been conducting "off-the-books" trading for a decade, apparently in an effort to recoup spiralling losses, and was formally sacked yesterday.

Comment, page 19

Start your day with The Independent, sign up for daily news emails
Voices
Lucerne’s Hotel Château Gütsch, one of the lots in our Homeless Veterans appeal charity auction
charity appeal
Arts and Entertainment
Tony Hughes (James Nesbitt) after his son Olly disappeared on a family holiday in France
tv
News
people

Jo from Northern Ireland was less than impressed by Russell Brand's attempt to stage a publicity stunt

Sport
Nabil Bentaleb (centre) celebrates putting Tottenham ahead
footballTottenham 4 Newcastle 0: Spurs fans dreaming of Wembley final after dominant win
PROMOTED VIDEO
Arts and Entertainment
The Apprentice candidates Roisin Hogan, Solomon Akhtar, Mark Wright, Bianca Miller, Daniel Lassman
tvReview: But which contestants got the boot?
Life and Style
A woman walks by a pandal art installation entitled 'Mars Mission' with the figure of an astronaut during the Durga Puja festival in Calcutta, India
techHow we’ll investigate the existence of, and maybe move in with, our alien neighbours
Arts and Entertainment
Jim Carrey and Jeff Daniels ride again in Dumb and Dumber To
filmReview: Dumb And Dumber To was a really stupid idea
Arts and Entertainment
Sir Ian McKellen tempts the Cookie Monster
tvSir Ian McKellen joins the Cookie Monster for a lesson on temptation
News
i100
Travel
Tourists bask in the sun beneath the skyscrapers of Dubai
travelBritish embassy uses social media campaign to issue travel advice for festive holiday-makers in UAE
News
ebooksNow available in paperback
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Java Developer - Hertfordshire - £47,000 + bonus + benefits

£40000 - £470000 per annum + bonus: Ashdown Group: Java Developer / J2EE Devel...

Ashdown Group: Direct Marketing Manager - B2C, Financial Services - Slough

£45000 - £55000 per annum + Benefits: Ashdown Group: An exciting opportunity h...

Ashdown Group: Java Developer - North West London - £47,000 + bonus + benefits

£40000 - £470000 per annum + bonus: Ashdown Group: Java Developer / J2EE Devel...

Selby Jennings: Corporate Communications & Marketing Specialist – Geneva

120,000 - 150,000 chf + bonus: Selby Jennings: A leading Swiss Private Banking...

Day In a Page

Jeb Bush vs Hillary Clinton: The power dynamics of the two first families

Jeb Bush vs Hillary Clinton

Karen Tumulty explores the power dynamics of the two first families
Stockholm is rivalling Silicon Valley with a hotbed of technology start-ups

Stockholm is rivalling Silicon Valley

The Swedish capital is home to two of the most popular video games in the world, as well as thousands of technology start-ups worth hundreds of millions of pounds – and it's all happened since 2009
Did Japanese workers really get their symbols mixed up and display Santa on a crucifix?

Crucified Santa: Urban myth refuses to die

The story goes that Japanese store workers created a life-size effigy of a smiling "Father Kurisumasu" attached to a facsimile of Our Lord's final instrument of torture
Jennifer Saunders and Kate Moss join David Walliams on set for TV adaptation of The Boy in the Dress

The Boy in the Dress: On set with the stars

Walliams' story about a boy who goes to school in a dress will be shown this Christmas
La Famille Bélier is being touted as this year's Amelie - so why are many in the deaf community outraged by it?

Deaf community outraged by La Famille Bélier

The new film tells the story of a deaf-mute farming family and is being touted as this year's Amelie
10 best high-end laptops

10 best high-end laptops

From lightweight and zippy devices to gaming beasts, we test the latest in top-spec portable computers
Michael Carberry: ‘After such a tough time, I’m not sure I will stay in the game’

Michael Carberry: ‘After such a tough time, I’m not sure I will stay in the game’

The batsman has grown disillusioned after England’s Ashes debacle and allegations linking him to the Pietersen affair
Susie Wolff: A driving force in battle for equality behind the wheel

Susie Wolff: A driving force in battle for equality behind the wheel

The Williams driver has had plenty of doubters, but hopes she will be judged by her ability in the cockpit
Calls for a military mental health 'quality mark'

Homeless Veterans campaign

Expert calls for military mental health 'quality mark'
Racton Man: Analysis shows famous skeleton was a 6ft Bronze Age superman

Meet Racton Man

Analysis shows famous skeleton was a 6ft Bronze Age superman
Garden Bridge: St Paul’s adds to £175m project’s troubled waters

Garden Bridge

St Paul’s adds to £175m project’s troubled waters
Stuff your own Christmas mouse ornament: An evening class in taxidermy with a festive feel

Stuff your own Christmas mouse ornament

An evening class in taxidermy with a festive feel
Joint Enterprise: The legal doctrine which critics say has caused hundreds of miscarriages of justice

Joint Enterprise

The legal doctrine which critics say has caused hundreds of miscarriages of justice
Freud and Eros: Love, Lust and Longing at the Freud Museum: Objects of Desire

Freud and Eros

Love, Lust and Longing at the Freud Museum
France's Front National and the fear of a ‘gay lobby’ around Marine Le Pen

Front National fear of ‘gay lobby’

Marine Le Pen appoints Sébastien Chenu as cultural adviser