Sumitomo 1996: Mr. Five Percent Hid a Decade of Losses │File 170 T1

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Sumitomo Copper Scandal 1996: how one trader at one of Japan's largest trading houses hid unauthorized losses for roughly a decade, then tried to win them back by cornering 93% of the copper warrants on the London Metal Exchange, a position justified by a circular physical flow that netted to zero.

This is the financial autopsy of the Sumitomo copper scandal. In 1985, Yasuo Hamanaka and his superior began speculating without authorization on LME copper forward contracts to recover an earlier loss on physical copper trading in the Philippines. The losses reached around $60 million, the superior resigned, and Hamanaka told no one. He kept a secret book of unauthorized trades, destroyed documents, lied to supervisors, and forged data and signatures. The company promoted him to head copper trader the following year. The market came to know him as Mr. Copper and Mr. Five Percent, for the share of the world's yearly copper supply he was said to control.

We trace how a hidden loss turned into a corner. Hamanaka ran monthly deals with a small trading firm that bought copper warrants from a Zambian producer, sold them to Sumitomo, and watched Sumitomo sell the same copper back to the same producer, month after month. On paper, that looked like a real copper business needing a hedge. In reality, the metal went around in a circle. Behind that cover, he built roughly two million tonnes of futures and nearly half of all LME warrants by September 1995, and 93% of them by late November. Anyone who had sold copper short and could not deliver had to buy back from him at his price.

The money came from more than a dozen LME brokers that had each extended roughly $150 million of credit on the strength of the Sumitomo name, and from large American banks, some of it structured as loans tied to copper. Sumitomo was not an exchange member, it traded through brokers, and the LME had no mandatory reporting of large positions. A trading firm that refused to put its letterhead on hundreds of millions of dollars of non-existent trades complained to the exchange as early as 1991, and nothing happened. American regulators noticed copper draining from New York warehouses into the LME's new Long Beach warehouse, but an investigation did not open until April 1996.

In June 1996, Sumitomo announced $1.8 billion in losses, later reaching $2.6 billion. Copper fell from about $2,800 a tonne in May to about $1,800 by late June. A Tokyo court sentenced Hamanaka to eight years for forgery and fraud. He was never convicted of manipulation, though Sumitomo paid $150 million to the American commodities regulator to settle manipulation charges and later recovered $275 million from Merrill Lynch. The LME rewrote its rules on membership and large-position reporting.

This episode is Part 1 (T1) of the Sumitomo Copper file, the narrative account for a general audience. Part 2 (T2) breaks down the GP/LP institutional layer: the exact mechanism, the three pieces of arithmetic sitting in public data and credit files, and the active due diligence framework for anyone allocating capital or credit against a desk whose results only the desk can explain.

Financial Forensics Labs dissects the world's biggest financial collapses, fraud cases, and institutional failures — layer by layer, case by case.

Keywords: Sumitomo copper scandal, Yasuo Hamanaka, Mr Copper, Mr Five Percent, Sumitomo Corporation, London Metal Exchange, LME copper, copper market corner, rogue trader case study, unauthorized trading, copper warrants, Global