Yasuo Hamanaka, a former chief copper trader at Sumitomo Corp., was sentenced to eight years in prison March 26 for fraud and forgery that eventually cost the trading giant some $2.6 billion -- the largest trading loss ever.

The Tokyo District Court found Hamanaka, 50, guilty of defrauding Sumitomo's Hong Kong subsidiary out of $770 million and forging the signatures of his former bosses to conceal his off-the-book trading.

The court also blamed the trading company for failing to properly supervise Hamanaka's trading and for poor crisis management, which it said allowed the losses to snowball. Hamanaka, once an influential dealer known as "Mr. Five Percent" because he was said to control 5 percent of the global copper market, stood motionless as presiding Judge Yoshifumi Asayama handed down the sentence. He then blinked hard and swallowed as if to calm himself. Prosecutors had demanded a 10-year sentence.

Hamanaka, a former head of Sumitomo's nonferrous metals department, was fired in June 1996 after he confessed to the firm that he had incurred huge losses through more than a decade of off-the-book deals in copper at the London Metal Exchange. He was arrested in October that year and pleaded guilty to the charges during court proceedings.

His lawyers had called for leniency, arguing that the defendant's illegal dealings were an attempt to recover losses for the firm and not to pocket money personally. They also said there was a lack of supervision on the part of Sumitomo. But Judge Asayama called the defendant's actions "malicious," saying the size of the fraud was "unprecedentedly enormous." Hamanaka continued his off-the-book trading to maintain his social fame and reputation as an influential trader, the judge said.

Hamanaka's wrongdoings caused serious damage to Sumitomo, "shaking the foundation of its management" and resulting in "enormous turmoil in international copper trading markets," the judge said.

The shock over Sumitomo's huge trading losses sent the world's copper market into a nosedive, with prices plunging from $2,600 per ton in May 1996 to $1,745 after Hamanaka confessed to the firm about the losses the following month. Currently, the market is trading at around $1,785.

To cover the huge trading losses, Sumitomo suffered 148.6 billion yen in unconsolidated net loss for the business year ending in March 1997, the first such loss since it was established in 1919. Sumitomo President Tomiichi Akiyama, who later became chairman, resigned in February 1997 to take responsibility.

Judge Asayama, on the other hand, found Sumitomo responsible for blindly trusting its former star dealer, saying the firm's "overemphasis on profit-making and its personnel policy, lacking crisis management, made his crimes this serious." While officially saying that it does not engage in speculative commodities trading, Sumitomo effectively condoned such trading by Hamanaka, the judge said.

Although an internal investigation by Sumitomo exposed a lack of proper control over the firm's copper trading team led by Hamanaka in the early 1990s, the company has since failed to take effective measures to correct the problem, the judge added.

Initially, prosecutors investigated whether Sumitomo's management was involved in Hamanaka's off-the-book trading, but no Sumitomo executives have been held criminally responsible. The court also accused Hamanaka of not coming forward with the whole truth. He has only owned up to the facts backed up by evidence, but has given "unnatural and vague" remarks on others, it said.

According to the court, Hamanaka started off-the-balance-sheet trading in 1985 with Saburo Shimizu, his former boss and then leader of Sumitomo's copper trading team, accumulating losses of 6.5 billion yen by the time Shimizu quit the firm in 1987.

Hamanaka continued illegal transactions afterward to recover the losses, incurring by June 1996 debts that had mushroomed to 285 billion yen, or $2.6 billion at the exchange rate at that time. From September 1993 until September 1994, Hamanaka forged the signatures of his superiors on four documents to keep his off-the-book trading from being discovered by Sumitomo and his clients.