Release: #4144-98
For Release: May 11, 1998




Company To Pay $150 Million And To Cease And Desist From Further Violations

The Commodity Futures Trading Commission (CFTC) today announced that it was issuing an order, in connection with settling the matter by consent, finding that Sumitomo Corporation of Japan (Sumitomo) manipulated the copper market in 1995 and 1996. In the order, which accepted an offer of settlement in which Sumitomo neither admitted nor denied the findings, the Commission found that Sumitomo engaged in a scheme to manipulate the price of copper through actions taken on the London Metals Exchange (LME), which caused artificially high prices in cash and futures markets in copper, including those in the United States, in violation of Sections 6(c), 6(d) and 9(a)(2) of the Commodity Exchange Act (CEA). The CFTC ordered the company to cease and desist from further violations of those provisions of the Act and to pay a total of $150 million. Of that amount, $125 million will be paid as a civil monetary penalty immediately. The remaining $25 million will be placed into escrow for a period of up to four years. During that period, that money may be used to provide restitution to persons injured by Sumitomo's unlawful conduct. If the money has not been paid out for that purpose by the end of four years, it will become part of the civil monetary penalty and be paid to the United States Treasury.

The settlement requires Sumitomo to cooperate with the CFTC in any further investigations or proceedings related to the conduct at issue.

In announcing the settlement and order, CFTC Chairperson Brooksley Born stated,

"This is an historic moment in the Commission's work to protect the people of the United States, the United States cash and futures markets and their participants against market manipulation. Today's settlement imposes a substantial civil monetary penalty in response to misconduct which caused very serious harm to the United States markets and users of copper. The settlement also reflects consideration by the Commission of the credit Sumitomo deserves for constructive actions it has taken and losses it has suffered in the wake of the public disclosure of the misconduct. This settlement comes after a long and difficult investigation, in which the Commission has worked in unprecedented cooperation with regulatory authorities in the United Kingdom, in particular the Financial Services Authority, and with the Japanese Government. We are extremely grateful to the authorities in both nations."

The Commission's Order details the circumstances of the manipulation. In the wake of accumulating large losses from speculative trading, the principal copper trader for Sumitomo engaged in a scheme, in conjunction with an entity operating in the United States, with the intent of manipulating the price of copper. In particular, during 1995 and 1996, Sumitomo, acting through its agent or agents, established and maintained large and dominant futures positions in copper metal on the LME. In the fall of 1995, Sumitomo stood for delivery on a significant percentage of its maturing futures contracts. It thereby acquired a dominant and controlling cash and futures market position, which directly and predictably caused copper prices, including prices on the United States cash and futures markets, to reach artificially high levels. Sumitomo's agent or agents took these actions expressly for the purpose of creating artificially high absolute prices and an artificially high premium of nearby prices over futures prices. Sumitomo, through its agent or agents, intentionally exploited these artificially high prices in order to profit on the liquidation of its large portfolio of futures contracts and holdings of LME warrants. Through these actions, the Commission found that Sumitomo manipulated upward the price of copper and copper futures in violation of Sections 6(c), 6(d) and 9(a)(2) of the Act.

Geoffrey Aronow, the Director of the Division of Enforcement, commented on the settlement:

"This settlement culminates one important part of an extensive investigation that has demonstrated our ability to address the challenges of today's international markets. I am very proud of the work of the staff of the Division in meeting those challenges. We could not have done so without the help and assistance of our counterparts, including the United Kingdom's Financial Services Authority, and other agencies in the United Kingdom, and of the Japanese Government. The result today demonstrates our commitment to protect our markets and the citizens of the United States from price manipulation, no matter where the threat originates."