Between at least 1989 and 3 May 1994 Rudolf Wolff committed misconduct within the meaning of Rule 10.1 of Part 2 of the LME's rules, and between 3 May 1994 and June 1996 committed misconduct within the meaning of Rule 10.4(i) of Part 2 of the LME's rules by reason of its failure to observe high standards of integrity and fair dealing and/or to observe high standards of market conduct.
Between 1989 and 3 May 1994, Rudolf Wolff committed misconduct within the meaning of Rule 10.1 of Part 2 of the LME's rules and between 3 May 1994 and June 1996 committed misconduct within the meaning of Rule 10.4(i) of Part 2 of the LME's rules by reason of its failure to deal with the LME in an open and cooperative manner.
A Disciplinary Committee began hearing the case on 2 May 2000. The outcome was as follows:
Rudolf Wolff has accepted that it committed misconduct in relation to the above charges by reason of its failure to observe high standards of market conduct, and by reason of its failure to report cross trades to the LME.
The LME has agreed to withdraw the above charges in so far as they allege a failure to observe high standards of integrity and fair dealing, and has also agreed not to proceed with the other charges served on Rudolf Wolff on 24 November 1997 which are similar to those previously dealt with by the SFA.
The LME and Rudolf Wolff acknowledge that the appropriate penalty for the above misconduct is £1 million, together with payment of the LME's costs.
The Disciplinary Committee, comprising Lord Donaldson of Lymington, Lord Fraser of Carmyllie QC and Mr Phillip Crowson, has approved a fine of £1 million and payment of the LME's costs in resolution of the said disciplinary proceedings instituted against Rudolf Wolff by the LME and approved the decision not to proceed with the above charges.
In June 1996, Sumitomo Corporation ("Sumitomo") announced that it had discovered significant losses caused by unauthorised trading over a ten-year period by its chief copper trader, Yasuo Hamanaka. At the same time, Sumitomo announced that it had terminated Mr Hamanaka's employment. Mr Hamanaka subsequently pleaded guilty to charges of fraud and forgery in Tokyo and was sentenced by the Japanese courts to a prison term of eight years.
In May 1998, the United States Commodity Futures Trading Commission ("CFTC") issued an order against Sumitomo to which Sumitomo consented without admitting or denying the charges therein, finding that in 1995 and 1996, Sumitomo had violated the Commodity Exchange Act by entering into a scheme to manipulate the price of copper.
Sumitomo was not and never has been a member of the LME. The LME's rules are designed not only to prevent members themselves from abusing the markets but also to limit the scope for clients and users to perpetrate abuse by means of members' facilities.
Between at least 1989 and 1996 RW were instructed to carry out a substantial volume of cross trades by Sumitomo. These were not proper trades and RW did not ask Sumitomo the purpose of these cross trades. Given the scale and nature of the cross trades, in failing to do so, RW accepts that it did not observe high standards of market conduct. Neither did RW disclose the carrying out of the cross trades to the LME. Again, in view of the volume and nature of the cross trades, RW accepts that it should have done so.
