Among the questions they are hoping to have answered by Sumitomo is the extent to which Yasuo Hamanaka, the trader at the centre of the losses, used Winchester Commodities and other London Metal Exchange brokers to carry out his trades.
As the copper price unexpectedly stabilised in London trading, it also emerged that the key traders who founded Winchester Commodities were previously employed by a firm run by David Threlkeld, the whistleblower who warned the London Metal Exchange about Mr Hamanaka's methods as long ago as 1991.
Mr Threlkeld's warning was brushed aside by the authorities. But it led to losses of key clients as dealers connected with Sumitomo stopped doing business with him, and his firm went under shortly afterwards.
Sources close to the market confirmed yesterday that Mr Threlkeld had sent a further series of warning about suspicious trade in copper in letters and faxes to the LME in early 1994.
In his first warning, Mr Threlkeld had written to David King, chief executive of the LME, saying he had been asked twice by Mr Hamanaka to confirm non-existent trades with Sumitomo backdated to the previous year. The correspondence was in the wake of a substantial squeeze in the copper market in 1993, which the SFA is investigating. The warnings were also shortly before Codelco, the Chilean copper firm, disclosed enormous losses in the market. According to metal dealing sources, Sumitomo was alleged at the time to have cornered up to 10 per cent of the copper market, manipulating it ito push up prices. It is understood that at the time of the previous SFA inquiry into Winchester the regulator asked Sumitomo whether it was satisfied with the trades and the losses being incurred by the firm in its dealings through Winchester. The reply by Sumitomo sources - not Mr Hamanaka - was that all was in order.
The two joint owners of Winchester, Ashley Levett and Charles Vincent, are both living in Monaco, where they retired last year. It is understood that both men, who handed over the control of Winchester to a new managing director, former Morgan Stanley corporate finance director Stephen Heath, left the UK for tax reasons. They were reported as earning pounds 15m each in the year to March 1995 and about pounds 10m each the previous year.
However, regulatory sources suggested yesterday that Winchester was aware of the fact the SFA would continue to have a strained relationship with the company while both men remained at the helm.
The continuing investigation into Winchester comes despite claims by the company that it had been given a clean bill of health by the SFA at the conclusion of its two-year inquiry in May this year. This is now being denied by SFA sources, who pointed to a letter sent to Winchester in which it was said no further action was planned, but only for the moment.
Winchester yesterday denied it had done anything wrong and welcomed further investigation by regulators into its activities.
A spokesman said: "Winchester confirms that it will be happy to co-operate with any inquiries that are set up to investigate the circumstances of Sumitomo's losses.
"Winchester has nothing to fear from these inquiries. [We] do not intend to speculate on the background of [the] losses."
The spokesman said he was unaware whether Credit Lyonnais Rouse, the derivatives arm of troubled French bank Credit Lyonnais, which took on the credit risk for a transaction in which Sumitomo lost up to $140m (pounds 90m) and Winchester allegedly gained more than $100m, had until recently had the option to purchase up to 20 per cent of Winchester.
Documents seen by the Indpenedent show Credit Lyonnais Rouse acted in at least one large copper deal that also involved a Winchester brokerage subsidiary and Global Global Minerals and Metals Corporation of New York.
Global was another firm doing substantial business with Sumitomo, and it confirmed it had a close relationship with the Japanese company. But a spokesman for Sumitomo repudiated this, saying Sumitomo had not authorised any accounts at Global.
Shares in Sumitomo Corporation fell steeply yesterday. Sources in Sumitomo admitted to the Nikkei Shimbun, the country's leading economic journal, that the London Metals Exchange drew attention to Hamanaka's activities twice, in 1991 and 1993. They said the LME supected him of fictitious trading and price manipulation, but in-house investigations by Sumitomo failed to turn up any evidence of dishonest activity.
The report will add to the incredulity among traders and analysts about the period of time that the deception went undetected. According to Sumitomo, Mr Hamanaka himself owned up to the unauthorised trades on 5 June, after a junior clerk turned up a minor discrepancy in financial statements.
Apart from one other unnamed employee, who left eight years ago, the company says that it is aware of no one else privy to Mr Hamanaka's secret. This version of events is greeted by unanimous scepticism among analysts in Tokyo.
"Even given the slack controls in Japanese companies, even given Hamanaka's cunning, it's almost impossible to believe that no one else had, at the very least, sniffed that something was fishy," one said yesterday.
"The copper markets had been in turmoil for weeks and everyone was pointing the finger at him. The British and the Americans were investigating; it's impossible to believe that they [Sumitomo] were the last to know."
A Sumitomo spokesman said yesterday that he could not comment as the corporation was still "studying" the report. The corporation has offered almost no public comment since Friday when trading in its shares was suspended for a day on the Tokyo Stock Exchange. Trading resumed yesterday and shares fell 200 yesterday to close at 1,010, down 16.5 per cent.
The fall reveals a suspicion among traders that the impact of the losses on the giant corporation may be more serious than it is letting on.
This was also reflected in the decision by Moody's Investors Service to downgrade Sumitomo's debt rating to A1 from Aa3, meaning it may cost the company more to raise money by issuing bonds. The markets were rife with rumour about losses sustained by other big traders of copper, including Mitsui and Morgan Grenfell. It also emerged that Nymex, the New York commodities exchange, has been running a campaign for tougher regulation of the LME. Nymex believes it is disadvantaged by being more tightly regulated.
Merrill Lynch confirmed it operated trading accounts for Sumitomo but denied they were secret conduits; they were authorised at levels more senior than Mr Hamanaka.
After a fall to as low as $1,800 per tonne copper, recovered to close unchanged at $1,980. Fears of collapse were unfounded and the Bank of England was not involved.,
Comment, page 17
Hamish McRae, page 19