Trading & Options · Profile from Trading and Options Research Companion
Sumitomo Copper and Yasuo Hamanaka
The copper team of Sumitomo Corporation, the Osaka- and Tokyo-based Japanese trading house, and its chief copper trader Yasuo Hamanaka, who hid trading losses from 1985 and then, with a New York merchant, cornered the London Metal Exchange (LME) copper market in 1995–96. The US Commodity Futures Trading Commission (CFTC) found that by 24 Nov 1995 Sumitomo "owned 93% of all LME warehouse stocks through one brokerage house alone", that the cash-to-three-month backwardation "rose to over three hundred dollars" a tonne, and that the scheme pushed US cash and futures prices to artificially high levels (CFTC order, 11 May 1998). Sumitomo removed Hamanaka in May 1996, disclosed a loss of about US$1.8bn on 13 Jun 1996, and raised it to US$2.6bn (¥285bn) in Sep 1996 (CFTC order; CFTC chair's testimony, 18 Sep 1996; Wikipedia citing Time and CNN). Hamanaka was sentenced in Tokyo to eight years for fraud and forgery on 26 Mar 1998; Sumitomo paid the CFTC $150m ($125m penalty plus a $25m restitution escrow) without admitting or denying the findings (CFTC release 4144-98). The case is the edge equation's lesson on cornering a market and the cost of unwinding: a dominant position can make a trader look right for years, but it cannot be sold without destroying the price that made it look right.
At a glance
- Entity
- Sumitomo Corporation (住友商事), a listed Japanese general trading company (sogo shosha); its non-ferrous metals division's copper team; chief copper trader Yasuo Hamanaka (born 1950 — Wikipedia)
- Headquarters
- Tokyo (Sumitomo Corporation); copper trading conducted largely through London brokers on the LME, with physical copper in LME warehouses including Long Beach, California (CFTC order)
- Ownership / structure
- Listed company (Tokyo Stock Exchange); not a fund. The copper "business" was a physical merchanting desk that also traded LME forwards; the losses were concealed in off-book accounts and personal notebooks (CFTC order)
- Type
- Blow-up / corner and concealment by an insider; this profile is a single-event entity with six moves (rule 6)
- The trader
- Yasuo Hamanaka, known as "Mr Copper" and "Mr Five Percent" — the second for the ~5% of the world's annual copper supply he was said to control (Wikipedia, citing Time, 24 Jun 1996 — the nickname's origin is press usage, not a measured share; verify)
- Scale (dated)
- Supply contracts with a New York merchant for 1,194,000 tonnes (1994–97); long LME forwards of ~2m tonnes in spring 1995 with about half of LME warrants (CFTC complaint, 20 May 1999); 93% of LME warehouse stocks via one broker on 24 Nov 1995 (CFTC order)
- Losses
- ~US$1.8bn disclosed 13 Jun 1996; US$2.6bn (¥285bn) from Sep 1996 (CFTC order: "$2.6 billion"; Wikipedia for the yen figure); ~US$0.2bn more in related lawsuit costs (Wikipedia; section 18)
- Enforcement
- CFTC consent order 11 May 1998: $150m ($125m civil penalty, $25m escrow for restitution); Sumitomo also paid ~$8m to the UK Securities and Investments Board (SIB) (Wikipedia — verify against SIB records); Hamanaka eight years (Tokyo District Court, 26 Mar 1998; appeal dismissed by the Tokyo High Court, Jun 1999 — Japan Times via search); released Jul 2005 (Wikipedia, verify)
- Regulators
- CFTC (US effects of the LME corner); UK SIB and the LME (UK; the SIB's functions passed to the Financial Services Authority from 1997–98 — from memory, verify); Tokyo District Public Prosecutors and courts (Japan)
- Moves in this profile
- Six — US comparisons are the Hunt brothers' silver corner (1979–80, defeated by exchange rule changes) and Amaranth Advisors (2006, a dominant share of NYMEX natural gas, disclosed and liquidated)
6 strategic moves analysed
Each one gets a full strategy file in the companion: context, the decision, the financing, what happened, and the lesson.
1985
Hidden Losses and Promotion
Rogue trade or control failure — the set-up
1994
Global Minerals Contracts and Bank Credit
Large position and funding — building the long side and the credit to carry it
1995
Cornering LME Copper Warrants
Large trade or position — the corner
1996
Removal Confession and Loss Disclosure
Loss, drawdown or blow-up response
1998
CFTC Order and Criminal Sentence
Regulatory, enforcement or legal action
1999
Suits Against Brokers and Banks
Regulatory, enforcement or legal action — recovery litigation