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Investigation Widens to Firms With Sumitomo Dealings

June 18, 1996

WASHINGTON (AP) _ Investigators have widened their probe of Sumitomo Corp.’s $1.8 billion loss to encompass all firms the Japanese metals giant dealt with in the copper market, the Commodity Futures Trading Commission said Monday.

The investigation intensified amid disclosures that questions about the scandal’s central figure were raised more than five years ago by another copper trader, David L. Threlkeld. Threlkeld alleged that Sumitomo’s chief copper trader, Yasuo Hamanaka, had asked him to falsify trading records in 1991.

Sumitomo had said in announcing the losses last week that it became aware of improper trading by Hamanaka only earlier this month.

Sumitomo said Thursday that Hamanaka falsified the company’s books and records to cover up the estimated $1.8 billion in losses over 10 years. Hamanaka, who was based in Tokyo, has since been fired.

In a statement, CFTC acting chairman John Tull described a sweeping review of Sumitomo’s trading and business relationships.

``In order to restore the confidence necessary for this market ... I have directed the commission staff to examine any and all relationships, financial or otherwise, between Sumitomo and any of the business concerns whose identities have surfaced or will surface in the course of the commission’s surveillance of the copper market,″ Tull’s statement said. The CFTC is the main federal regulator for commodities and futures markets.

One of the companies under CFTC review is Global Minerals & Metals Corp. of New York, according to a source familiar with the investigation, who spoke on condition of anonymity. Global Minerals sold Sumitomo contracts to buy copper, according to Global attorney Peter Havles.

Global has denied wrongdoing and said it isn’t a target of any CFTC Sumitomo probe, Havles said, but the firm has been subpoenaed to provide information for a general CFTC investigation into unusual volatility in the copper markets.

The New York Times reported in Tuesday’s editions that Global and its president, David Campbell, were also subpoenaed Monday by the U.S. Attorney’s office for the Southern District of New York.

Citing traders familiar with Global, the paper said it made $150 million in 1994, its first year of trading, because of its relationship with Sumitomo.

The CFTC also is reviewing Winchester Metals Ltd., the source said. The firm is a trading arm of Winchester Commodities Group Ltd. of Winchester, England, which handled many of Sumitomo’s trades on the London Metal Exchange, where most of the world’s copper is traded.

In another development, two sources said the CFTC formally questioned Hamanaka in April. That interview tipped off CFTC investigators that ``something was wrong″ with Hamanaka’s copper trading, according to one of the sources, a regulator who demanded anonymity. It wasn’t until nearly two months later that Sumitomo publicly accused Hamanaka of a decade’s worth of false trades, which led to the largest corporate trading loss in history.

The April deposition of Hamanaka, part of a broader review of irregularities in the copper market, compelled the CFTC to work even more closely with the British Securities and Investment Board to focus on Hamanaka, the source said. Asked about the deposition, Sumitomo spokesman John Burke said the company had been cooperating with regulators since the fall in the broader investigation.

Meanwhile, a broker who once dealt with Hamanaka disclosed that the Sumitomo trader asked for his help in falsifying trades.

Threlkeld, a Vermont-based copper trader, notified the chief executive of the London Metal Exchange in 1991 that Hamanaka sent a fax requesting he backdate a series of trades that never took place. In the letter, a copy of which was obtained by The Associated Press, Hamanaka asked Threlkeld to document $500 million in trades on his company’s letterhead and send the document to ``Mr. Nishi″ with a firm identified only as ``Winchester Tokyo.″

Hamanaka wrote that the request was ``for our company’s internal accounting purpose only and I guarantee that this will not cause you any trouble ...″ The handwritten note ends in capital letters: ``Do me a favor for this.″

``I was disturbed about his pattern of trading,″ Threlkeld said of Hamanaka. ``I was then convinced when he sent me the request that my suspicions were correct.″

Threlkeld said his complaints were ignored by the London Metal Exchange.

David King, chairman of the London Metal Exchange, said Hamanaka ``was not subject to the jurisdiction of the LME″ and so the exchange couldn’t bring an enforcement action against him. King said LME officials discussed the letter with the Securities and Investment Board, which oversees Britain’s financial markets, and Sumitomo management.

The LME had Sumitomo release Hamanaka’s letter to the public in 1991, gaining some press attention. However, it was unknown at the time Hamanaka allegedly was engaging in unauthorized trading.

Threlkeld said he had one of his employees do an analysis of some of Hamanaka’s trades, and they didn’t make sense. As a result, Threlkeld confronted two employees in his London office, Charles Vincent and Ashley Levett, about the trades.

``I fired Vincent. Levett quit,″ Threlkeld said. Both left to form their own firm, Winchester Commodities Group.

A telephone call placed to Winchester Asset Management, an affiliate of Winchester Commodities, wasn’t immediately returned.

Winchester came under scrutiny last year by a British regulator for its copper market dealings, but no charges were filed.

The U.K. Securities and Futures Authority was concerned about Winchester’s trades with Codelco, the Chilean state-run copper company. Codelco has said it suffered losses of $206 million due to copper futures trading of a former employee, Juan Pablo Davila, who was charged in the case in 1994 by Chilean prosecutors.

``Earlier this year, we notified Winchester that we could find no case of any specific malpractice or breach of SFA rules based on the information that we had,″ said David Jones, spokesman for the British futures regulator.

Jones said his agency met with Charles Vincent, who ran the trading firm Winchester Commodities and was known as ``Copperfingers″ until his resignation in April.

Winchester Commodities said in April that Vincent’s departure was for ``lifestyle reasons″ and unrelated to the SFA investigation, according to the Daily Mail of London. That newspaper said Vincent was one of Britain’s highest paid directors, who took home an estimated 15 million British pounds last year, worth about $23 million at current exchange rates.

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EDITOR’S NOTE: Associated Press reporter Wilson Ring in Montpelier, Vt., contributed to this report.

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