Rogue derivatives trader at Mitsubishi Corp’s PDS subsidiary causes $320m loss

Maria Nikolova

An employee at Petro-Diamond Singapore has been repeatedly engaging in unauthorized derivatives transactions and disguising them to look like hedge transactions.

Mitsubishi Corporation has earlier today confirmed that its subsidiary Petro-Diamond Singapore (Pte) Ltd. has realized a loss due to the actions of a rogue trader.

Petro-Diamond Singapore (Pte) Ltd., which engages in the trade of crude oil and petroleum products, has confirmed that it expects to book a loss of approximately USD 320 million from its trade of crude oil derivatives.

The loss stems from the trades of an employee who was hired locally by PDS to handle its crude oil trade with China. The employee was discovered to have been repeatedly engaging in unauthorized derivatives transactions and disguising them to look like hedge transactions since January of this year. Because the employee was manipulating data in PDS’s risk-management system, the derivatives transactions appeared to be associated with actual transactions with PDS’s customers.

Since July, the price of crude oil has been dropping, leading to heavy losses from derivatives trading. PDS began investigating the employee’s transactions during his absence from work in the middle of August, and that is when the unauthorized transactions were detected.

After finding out that the transactions could result in a loss for PDS, MC and PDS immediately consulted with an outside lawyer and established an investigation team, including local outside experts, to gain an overall picture of the situation and identify the causes.

PDS closed the derivatives position in question and determined the losses caused by the transactions which were not associated with any crude oil transactions with PDS’s customers. PDS also has since prevented the initiation of any similar transactions.

Mitsubishi conducted internal investigation at PDS, which included inspections of PDS’s contracts, rules, risk-management system and internal controls. Based on its findings, Mitsubishi has reconfirmed that PDS has sufficient internal controls in place, including a middle office responsible for risk management.

PDS terminated the employment contract of the rogue trader on September 18, 2019. The company also lodged a police complaint against the employee a day later.

Mitsubishi Corporation noted that it recognizes the seriousness of the matter and will be intensifying its efforts to ensure that it does not happen again.

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