Mitsubishi Corp rogue trader loses USD 320 million in unauthorised derivatives transactions

On 20 September 2019, Mitsubishi Corporation announced that its subsidiary Petro-Diamond Singapore (PDS), which engages in the trade of crude oil and petroleum products, expected to book a loss of approximately USD 320 million (EUR 289.6 million) due to an employee’s unauthorised crude oil derivatives transactions.

Mitsubishi reported that the employee had been hired by PDS to handle crude oil trade with China. It was discovered that between January 2019 and August 2019 that the employee repeatedly engaged in unauthorised derivatives transactions and disguised them to look like hedge transactions. The derivatives transactions appeared to be associated with actual transactions with PDS’ customers because the employee manipulated data in PDS’ risk-management system.

According to Mitsubishi, large losses from crude oil derivatives trading were incurred since July 2019 as oil prices dropped. PDS began an investigation in the middle of August 2019 when the employee was out of the office and the unauthorised transactions were discovered.

PDS quickly closed the derivatives position in question and determined the losses caused by the transactions. PDS also prevented the commencement of any similar transactions, Mitsubishi announced. Additionally, Mitsubishi announced that it and PDS immediately consulted with an outside lawyer, and established an investigation team to identify the causes of the incident.

Mitsubishi also said it had conducted an internal investigation at PDS, including inspections of contracts, rules, risk-management system and internal controls. It was found that PDS had sufficient internal controls in place and that PDS had already tightened its governance to ensure that any similar irregularities could be detected at a much earlier stage. Mitsubishi also carried out investigations at its other group companies and departments engaged in derivatives trading and confirmed that there were no similar problems or risks as of 20 September 2019.

On 18 September 2019, PDS terminated the employment of the responsible employee, and lodged a police complaint against him on 19 September 2019.

As of 20 September 2019, PDS had lost USD 320 million and investigations were ongoing.

On 7 November 2019, finenews.asia reported the employee responsible as Wang Xingchen, or Jack Wang. Wang denied any wrongdoing. According to Mitsubishi's chief financial officer (CFO), the bank had no contact with Wang or any knowledge of his whereabouts except for the fact that he was no longer in Singapore.

finenews.asia also reported that Mitsubishi would shut down its Singapore-based crude oil and fuel trading units. Some of the oil and fuel trading activities would be imported back to Tokyo with some settlements to be executed in Hong Kong. Mitsubishi did not detail how the shutdown would affect the around 50 employees from the PDS office in Singapore. Mitsubishi's CFO stated that, due to the size of the loss, the bank could not reinvest in the same company and that it was better to reinforce its management system.

UPDATES

7 October 2019: Institution name changed from Mitsubishi UFG Financial Group to Mitsubishi Corporation. PDS is a subsidiary of Mitsubishi Corporation which is a legally separate entity from Mitsubishi UFG. There is no formal connection between the two entities. Headline and paragraph 1 changed to reflect this.

7 November 2019: Mitsubishi confirms it will shut down its Singapore-based crude oil and fuel trading units. The employee responsible is named as Wang Xingchen, or Jack Wang. Paragraphs 8 and 9 added.