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Sumitomo faces fresh claims it knew of losses

Evidence mounted yesterday that a number of senior officials at Sumitomo Corporation may have known for some time of loss-making trading accounts operated by the disgraced trader Yasuo Hamanaka, as US law officials began a criminal investigation into the $1.8bn case.

The US Attorney's office in New York opened a formal grand jury investigation to search for links between Mr Hamanaka and copper trading firms in the US.

This means criminal investigations are under way on both sides of the Atlantic, following an announcement last Friday that Britain's Serious Fraud Office is looking into the affair.

The US Attorney's investigation became known after Global Minerals & Metals Corporation in New York said it had been served with a subpoena on Monday requesting the production of documents.

Its founder, David Campbell, was also subpoenaed to testify before the grand jury, said Elliot Sloane, a spokesman for the firm.

"We're not the target here, at all. It's Hamanaka," added Mr Sloane. The company's lawyer, Peter Haveles, said: "The company is confident that at the end of the inquiry, it will be shown that there is nothing wrong".

Mr Sloan confirmed that Global was a large buyer and seller of copper on behalf of Sumitomo and it also acted as a broker, using accounts at Merrill Lynch and Rudolf Wolff in London, maintained in Sumitomo's name for hedging the Japanese giant's copper exposure.

Sumitomo has declared that Mr Hamanaka authorised these accounts by himself, against company rules, and there have been reports that they were secret devices operated as part of Mr Hamanaka's fraudulent schemes.

Sumitomo said specifically on Monday that the Global accounts operated in its name were not authorised.

But both Global and Merrill said the brokerage accounts were properly authorised by Sumitomo at a level senior to Mr Hamanaka.

Mr Sloane said Global expected to be able shortly to publish documentary evidence of this claim. Rudolf Wolff refused to comment.

Simultaneously, details also surfaced of a parallel civil inquiry by the Commodities Futures Trading Commission, (CFTC), which is the main federal body that oversees commodities trading in the US. Among firms it is believed to be reviewing is Winchester Commodities of the UK.

In a statement confirming his probe, John Tull, acting chairman of the CFTC said: "In order to restore the confidence necessary for this market ... I have directed the commission staff to examine any and all relationships, financial or otherwise, between Sumitomo and any of the business concerns whose identies have surfaced or will surface in the course of the commision's surveillance of the copper market."

In Japan, Sumitomo's vice-president, Mutsumi Hashimoto, gave an evasive performance, refusing to comment on reports linking Mr Hamanaka's copper trades with Global Minerals and Metals. Global, founded in 1993, is reported have had close ties with with Sumitomo to the extent that the securities house even offered to invest as much as $3m to fund its creation.

Mr Hashimoto also left open the possibility that Sumitomo may sue Mr Hamanaka and that senior management, including the Sumitomo president, Tomiichi Akiyama, might resign, and hinted that a proposed buy-up of the corporation's own shares, scheduled for a general shareholders' meeting on 27 June, was now in jeopardy.

He added that the corporation would "thoroughly reinforce our internal control system," although he failed to explain how this might be achieved.

In a further unsuccessful attempt at damage limitation, Sumitomo gave a private briefing to securities analysts from major brokerages to answer questions about Mr Hamanaka's losses. "They were trying to reassure us, but in my case it had the opposite effect since they were able to answer so few of our questions," said Paula Sugawara of Lehman Bros. "I still think there's a lot of bad news yet to come out. To be running up those kinds of losses and the company not to know seems incredible."

"We had expected the company to give us more details about the loss but they didn't, so it was very disappointing," said Kota Nakako, an analyst at SBC Warburg who has reversed his recommendation on Sumitomo from buy to sell. Sumitomo shares closed 20 yen higher at 1,030 yen, after a 200 yen fall on Monday.

Journalists have been unable to track down Mr Hamanaka, who is said by his daughter to have left the family home in Kawasaki, near Tokyo, late last week for an unknown destination. Sumitomo claims to have no knowledge of his whereabouts.

In London, Winchester Commodities Group said it "vehemently denies" responsibility for any Sumitomo losses. It said it had had minimal involvement with Sumitomo in the last 12 months during which many brokers were heavily engaged representing the Japanese firm. Winchester said it would be happy to help any inquiry and "has nothing to fear".

The London Metal Exchange, which has stayed silent on the scandal since the weekend, promised a statement today after a meeting of its copper specialists yesterday. The price of copper remained stable in London, $10 higher at $1,990 a tonne, but trade slowed to a trickle.

Nymex, the New York energy and metals market, has been campaigning for tighter regulation of the London Metal Exchange since well before the Sumitomo crisis emerged, because of concerns that problems could spill over into the US.

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