Case Study Yasuo Hamanaka $2.6 billion Sumitomo Corporation Fraud Case 1997
The Causes and Effects of Yasuo Hamanaka $2.6 Billion Sumitomo Corporation Fraud Case
Background facts of the case
Yasuo Hamanaka was one of the most popular copper traders in the world during the 1980s and early 1990s. In fact, was so popular that he was referred to as “Mr. Five Percent” within the copper trading markets during his heydays.
He was the chief trader of Sumitomo Corporation in Japan which held 5% of the world share in the copper markets. This misnomer was additionally because he was said to have controlled at least 5% of the markets in copper trading.
Mr. Hamanaka was so good at what he did that when his fraudulent deals were discovered and he was transferred to the non-ferrous department of the Sumitomo Corporation, the prices of copper fell significantly.
The $2.6 billion Sumitomo Corporation Fraud Case
In 1995 the US alerted the British LME regulators of anomalies in the copper market. This was due to the fact that there were fluctuations in copper prices. Ideally, buyers who bought copper immediately would pay a little more as compared to those who would buy for future use. This was to cater for other costs. The differences between immediate purchases and future ones would be a little margin.
However, the US traders notified the LME that the margins were too big and something was definitely amiss. To this effect, the British began investigating Sumitomo dealings because they controlled the largest market share in copper trading in the world. This is what eventually led to the discovery of Mr. Yasuo Hamanaka’s fraudulent dealings in the copper markets.
Yasuo Hamanaka controlled the markets by buying huge stocks of copper in advance. He would then keep them and raise the costs for dealers who were buying for immediate use. By keeping huge deposits of the metal in warehouses, the copper trader would create the perception of shortage in the market. Traders in need of immediate copper purchases would thus have to pay steeper prices for the commodity.
So much was Mr. Hamanaka focused on hoarding the copper commodities and controlling the prices that he sometimes purchased the copper at higher prices than the market price and stored it in warehouses. This made him incur losses on behalf of Sumitomo Corporation.
To date it is still unclear whether the management of Sumitomo Corporation was aware of Mr. Yasuo Hamanaka’s fraudulent deals. This is because the trader claimed that he was acting in cahoots with his superiors and that they were aware of his fraudulent activities long before they were discovered.
Questions have arisen as to how Mr. Hamanaka’s deals could have gone unnoticed for such a long period given the fact that he had been engaging in the deals for close to a decade.
The Impact of Yasuo Hamanaka’s Fraudulent Copper Trading Scheme
After being fired from Sumitomo Corporation, Yasuo Hamanaka was sentenced to 8 years imprisonment in 1997. The Sumitomo Corporation reported a $2.6 billion losses during that year of which $1.9 billion was directly attributed to Mr. Hamanaka’s fraud scheme. However the company did not collapse and recovered from this loss with time. Sumitomo Corporation was also fined a total of $150 million by regulators of copper trade for failing to acknowledge or deny whether or not it was aware of the decade long scheme.
Copper prices in the world were not left unscathed in the wake of Yasuo Hamanaka’s fraud scheme. They plummeted sharply with his confession and later incarceration. However with time, these prices stabilized and even rose back to normal.
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