Sumitomo Corporation Case Study

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Sumitomo Copper Scandal (1995)
Impacts on the Sumitomo Corporation The Sumitomo Copper estimated that the copper scandal, the financial scandal, gave rise to losses of $1.8 billion in June 1995. According to the company, the case would not affect their activeness and they would swallow the entire loss in the current fiscal year, which was about nine months after it took place. In order to cover the $1.8 billion losses, they would set aside a fund from the original executive bonuses and canceled share buyback program.
On September 19, Sumitomo announced that after they had closed out complex trading in very risky derivative instruments created by Mr. Hamanaka, the losses had increased to $2.6 billion, $800 million higher than its previous estimate released in June. It is said that they would still struggle to swallow the losses by selling stocks and real estate for the remaining $800 million. Sumitomo was capable of
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The specified copper trading is contracted by authorized market participants that set their delivery conditions not by LME but by themselves. In addition, it will not require margin to protect positions if the counterparties make an agreement. The large scale and the flexible regulation of the LME give Mr. Hamanaka opportunities to reach the broad market so the cards are stacked in favor of his unauthorized trading.
On January 1996, the U.S. Commodity Future Trading Commission (CFTC) made contact with the British regulators as to the suspicious price movement which happened in the copper market. They looked into the trading activities operated in the LME and believed that Sumitomo was the core issue of the market changes. A British finance ministry officially contacted to its Japanese counterpart so as to warn that there was some evidence which indicated Sumitomo had big regulatory

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