It didn’t take long for Global to establish a hefty long position in copper futures – owning positions on 780,000 metric tons by September 1995. In a short space of time, Sumitomo, working with a handful of other metal brokers, owned around two million tons of copper futures. It was here that the fruits of Hamanaka’s plan came to bear as he unwound the futures positions allowing him to begin generating significant profits and control the copper cash supply. This position and the structure of the deal gave Hamanaka the power and ability to manipulate the market and drive up the price of copper to artificial highs.

In doing so, not only was Hamanaka and Sumitomo able to profit from this directly by selling their assets, they were also able to leverage other revenue streams. For instance, as one of the world’s foremost copper dealers, Sumitomo handled a large number of other copper transactions – aside from their own. It therefore earned commission on these transactions and the higher prices meant Hamanaka was able to help Sumitomo earn impressive profits and be regarded as the saviour of the company’s copper business.

A badly kept secret

In the closed circle of copper trading it was well known what Hamanaka was doing. But his strategy was protected because of the regulatory shortcomings of the LME which required no mandatory position reporting, unlike in the US for example, where this was commonplace. As a result, nobody except for Hamanaka and his inner circle knew how much of the market he controlled and also the levels of cash he held in reserve. Some brave traders tried to short-sell, but this proved futile as the sheer volumes of capital that he had at his disposal meant that he could inject cash into his position and simply out-last the short-sellers. With no hard evidence for the regulators, most in the market eventually just gave up and let him do as he pleased.

There were however those who had some evidence of wrongdoing, yet even this wasn’t enough to bring down Mr Copper. A Business Week article alleged that in 1991 a copper broker called David Threlkeld was asked by Hamanaka to backdate a fake copper trade worth $425m. Threlkeld refused and subsequently handed over the letter to the then LME Chief Executive David King – something it supposedly investigated before concluding that the matter was outside of its scope. Threlkeld also reported another deal, this time with the Securities and Futures Authority (SFA); however, the claim again failed to see Hamanaka investigated. Yet, there was clearly some suspicion about Hamanaka and his activities. As a Business Week report claims, between 1992 and 1995, regulators and officials from the LME quizzed firms trading on behalf of Hamanaka on his activities.

Downfall

Of course, all good things must come to an end and for Hamanaka his scheme began to unravel in 1994 following the opening of an LME warehouse in California, which meant that Hamanaka’s actions began to directly impact the US markets. The downfall took just under a year to manifest and in Q4 1995 the price of copper soared and cash in the market dried up as a result of copper entering the California warehouse and never leaving. The result was ‘backwardation’ a market phenomenon where the spot or cash price of a commodity is higher than the forward price – something that often signals somebody is trying to control the market.