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Former Copper Trader Hamanaka Arrested, House Searched

October 22, 1996

TOKYO (AP) _ The trader accused of racking up billions of dollars in losses at Sumitomo Corp., which shook the company and roiled the world’s copper markets, was arrested today and his house searched.

Yasuo Hamanaka, 48, allegedly amassed $2.6 billion in losses from unauthorized trades. The scandal, which broke in June, called into question risk management at Sumitomo, one of the most powerful companies in Japan.

Hamanaka was fired by Sumitomo shortly before it announced the debacle, which sent prices falling on international copper markets. Since then he had kept a low profile.

The former star trader was arrested on suspicion of forging documents involving metal trading with the U.S.-based Merrill Lynch group, the Tokyo Public Prosecutors Office said.

Authorities refused to disclose where he was arrested. National broadcaster NHK showed footage of Hamanaka, dressed in a suit and tie, being driven from the prosecutors office to the Tokyo Detention Center.

Investigators also searched Hamanaka’s house in a suburb of Tokyo. No one was at home at the time, and authorities did not disclose, what, if anything, was confiscated.

Hamanaka, who worked as a Sumitomo trader for two decades, allegedly ran up the massive losses over 10 years, leading to speculation of lax oversight at the 300-year-old Sumitomo.

The scandal followed trouble at another Japanese company, Daiwa Bank, which paid in fines and prestige earlier this year for delaying a report on $1.1 billion in losses from unauthorized bond trades.

At a hastily called news conference after today’s arrest, Sumitomo managing director Naoki Kuroda denied anyone else in the company knew about what Hamanaka was doing.

``Basically he did it all on his own,″ Kuroda said. ``We’d like to get to the truth of what he did.″

Kuroda suggested that Hamanaka was able to carry out the trades because he used forged signatures rather than seals, which are the customary means of signing documents in Japan.

Fraud experts and investigators, however, doubt Hamanaka could have chalked up losses of such magnitude without others knowing.

Prosecutors said Hamanaka forged signatures of his metals department director and a Sumitomo executive on a metal trading contract with a Merrill Lynch subsidiary in January 1994.

Eight months later, Hamanaka, using his reputation as an experienced copper trader, forged the signature of another Sumitomo executive on contracts to allow him to receive deposits from Merrill Lynch subsidiaries through their various metals trading with Sumitomo, according to the prosecutors.

Sumitomo’s troubles raised questions at home and abroad about whether something is wrong with Japanese management. The country was already hurting from a series of scandals surrounding a string of failed housing lenders.

The scandal has hit a particularly prestigious company.

Sumitomo was founded in the 17th century by Masatomo Sumitomo, a former monk who wrote about business ethics. The company’s influence was enormous in the international copper market, where it was believed to control up to half the world’s production.

Last year, Daiwa Bank said its head bond trader had hidden more than $1.1 billion in trading losses over 12 years. U.S. authorities forced Daiwa to close its U.S. operations and pay $340 million in fines in February.

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