SUMIMOTO CORPORATION – the history of the biggest copper scam

In the mid-1990s, one of the biggest scandals related to copper price manipulation broke out in the financial markets. In its wake was the name of Sumitomo Corporation, one of Japan’s largest trading houses with a centuries-old history. Today’s Strifor review on how ambition and desire to control the copper market led to one of the largest losses and financial investigations in the history of Japan and the world.

How did it all start?

At the center of the story was Yasuya Hamanaka, a trader and head of copper trading at Sumitomo Corporation, known as the “Copper Czar”. In 1986, Hamanaka took advantage of his position to buy huge amounts of copper on the London Metal Exchange (LME). His strategy was to create scarcity by influencing the global price level.

For nearly a decade, Hamanaka successfully concealed his actions by using forged documents and circumventing internal audits. His activities allowed him to keep copper prices artificially high, generating huge profits for the company and himself.

At the height of his fraud, in the early 1990s, Yasua Hamanaka controlled up to 5% of the world copper market, and his position reached over 1.5 million tons of copper, which was a significant portion of the London Metal Exchange (LME) inventory. Comparatively – that’s a huge amount, especially when you consider that annual global copper production is around 20-25 million tons. Exact profit figures are still unknown, but it is believed that in his best years his operations brought in hundreds of millions of dollars.

To visualize the volume of copper under Hamanaka’s control, one can imagine this volume in the form of copper sheets that could cover the entire territory of Luxembourg or 294 thousand soccer fields. By comparison, this amount of copper is 10 times the weight of the Eiffel Tower or roughly half of the entire annual copper production in the United States at the time.

The peak of the scam and the collapse

By 1995, Hamanaka had amassed a huge position in copper, controlling a significant portion of the world’s supply. However, his play with fire came to an end when international traders and analysts began to notice strange fluctuations in copper prices. The London Metal Exchange and other regulators launched an investigation, and in 1996 Hamanaka’s activities were exposed.

The disclosure of the fraud led to a collapse – Sumitomo lost more than $2.6 billion, one of the largest losses ever recorded as a result of financial manipulation. Hamanaka was fired and sentenced to 8 years in prison, and Sumitomo Corporation suffered a serious blow to its reputation.

According to the official investigation, Hamanaka acted alone by circumventing internal control systems and forging documents. He used his reputation to avoid audits, but it is also possible that the company preferred to turn a blind eye to his methods as long as they were profitable. Sumitomo later acknowledged the lapses in internal controls, but Hamanaka’s direct accomplices were not identified.

Implications of the scandal

The collapse of Hamanaka was a lesson for financial institutions around the world. The London Metal Exchange and other markets have strengthened controls and implemented stricter measures to prevent manipulation. The Sumitomo Corporation story also served as a warning to companies about how excessive lust for control and ambition can lead to devastating consequences.

After his prison term, Hamanaka disappeared from public view. There is no publicly available information about his future career or any public appearances after his release. He probably did not return to public activity in finance or commerce after the scandal.

To summarize

The story of Sumitomo and “copper king” Hamanaka is a reminder that even large corporations can fall victim to manipulation if proper controls and transparency are lacking. This case changed the approach to risk management and triggered global changes in the regulation of commodity trading.

In today’s financial markets, the risk of manipulation is much lower thanks to cases like this, which have helped build mechanisms to ensure fair and open trading. Strifor broker shares these principles, which is confirmed by an official brokerage license of Mauritius* and cooperation with The Financial Commission**. Join us and safely trade CFDs on metals, stocks, cryptocurrencies, commodities and Forex. 

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