Ex- Sumitomo Copper Trader Pleads Guilty

Yasuo Hamanaka, the legendary trader who once dominated the world copper market, pleaded guilty yesterday to charges of fraud and forgery, shouldering blame for a scandal that cost his ex-employer $2.6 billion. The former chief copper trader for Sumitomo Corp admitted his guilt when the chief of a three-judge panel summarised the charges against him.

The charges carry a penalty of up to 15 years in prison.

In a statement opening the trial, prosecutors for the first time portrayed Hamanaka not as a simple, loyal company employee who got in over his head but as a trader who dined at posh restaurants, took expensive overseas holidays and loved to play at exclusive golf clubs.

 

Hamanaka, 49, who spent all of his professional life at trading house Sumitomo, was fired last June for what the company said was a decade of unauthorised trading that cost it $2.6 billion.

The amount, the biggest-ever loss in a financial market, dwarfed even the $1.4 billion that British stocks trader Nick Leeson lost in bringing down the venerable British merchant bank Barings.

The plea was not a complete surprise since his chief lawyer had previously said Hamanaka wanted to get the case behind him.

But it leaves unanswered a number of key questions about how Hamanaka could have kept the massive losses in trading dating back to 1985 secret from his bosses for so long and whether, and how, he may have manipulated global copper prices.

The question of market manipulation is still under investigation by US and British regulators, although Japanese authorities have said that since the copper deals all took place overseas, they are not directly involved.

In its statement, the prosecution detailed some of Hamanakas unauthorised, loss-making deals with such global financial heavyweights as Morgan Guaranty Trust Co, Credit Lyonnais Rouse and the Merrill Lynch group.

While none of the firms was implicated in any wrongdoing, the prosecutors charged, and Hamanaka admitted, that he resorted to forgery and fraud to cover his losses in dealings with them.

Prosecutors highlighted a special relationship between Hamanaka and Winchester Commodities Group, a British brokerage, saying its Tokyo representative, a friend of Hamanakas, gave him $120,000 at current exchange rates) in cash that he used to entertain clients and others at night clubs and golf courses.

The co-founders of Winchester, Charles Vincent and Ashley Levett, who are now living in Monaco, said last July Sumitomo board members had approved a massive, complex copper deal with Hamanaka code-named RADR.

The Financial Times newspaper on Monday reported that investigations by BBC televisions Panorama programme, to be aired later in the day, found that the RADR deal was unfairly priced in Winchesters favour.

The prosecutors touched only lightly on what has been a key question on the minds of traders and others following the case: How Hamanaka could have kept his superiors in the dark for so long.

Sumitomo has repeatedly denied that Hamanakas superiors

knew about his off-the-books trading, while Hamanaka himself

has yet to comment publicly on the matter.

Prosecutors said Hamanaka avoided detection by deceiving his superiors as he cultivated their trust in him by making sure the copper team always recorded a profit every year.

The court will get a closer view of internal checks and controls at Sumitomo when the defence calls Yoshio Takeuchi, of the trade houses credit control department, as a witness at the trials next hearing on March 10.

It will allow us to hear directly what the systems of checks at Sumitomo headquarters was like, Hidesato Sekine, a lawyer for Hamanaka, told reporters.

While Hamanaka has pleaded guilty, the hearings on the case will continue, partly to determine any mitigating factors that might affect his sentence.

Like the Daiwa Bank scandal before it, the Sumitomo case has raised questions about internal checks at Japanese corporations and financial institutions.

In a case that made headlines little more than a year ago, a bond trader in Daiwa Banks New York office was sentenced to four years in prison for hiding losses of $1.1 billion in unauthorised trades.