Trading house Sumitomo Corp. said Monday it has reached an out-of-court settlement with J.P. Morgan Chase & Co. over unauthorized copper trading by a former Sumitomo employee.

Under the agreement, the U.S. financial firm will pay $125 million to Sumitomo without admitting any wrongdoing, while Sumitomo will drop its case, the trading firm said in a brief statement.

In August 1999, Sumitomo filed a lawsuit in the United States against the J.P. Morgan group of companies, demanding compensation of $735 million on top of punitive damages.

Sumitomo claimed that the J.P. Morgan group charged Yasuo Hamanaka, a copper trader at Sumitomo, "an effective interest rate" of as much as 150 percent, despite knowing he lacked the authority to take out the loans.

As a result, Hamanaka was secretly forced to pay J.P. Morgan almost $1.2 billion to satisfy the debt, even though he borrowed only $535 million in trades disguised as complex copper derivatives deals, Sumitomo said.

Starting 1985, Hamanaka, then head of Sumitomo's nonferrous metals department, made what the company said were unauthorized transactions and hid his losses until they swelled to $2.6 billion.

In November 1996, prosecutors in Japan charged Hamanaka with forging documents relating to copper deals between September 1993 and September 1994 to conceal the losses. Hamanaka pleaded guilty and was sentenced in 1998 to eight years in prison, a sentence he is now serving.