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S Korea court fines US fundLone Star, jails executive PDF Print E-mail
Sunday, 03 February 2008

Agence France-Press . Seoul

A South Korean court on Friday convicted US buyout fund Lone Star of rigging shares following its takeover of a local bank, imposing fines totalling 53 million dollars and jailing an executive.

The Seoul Central District Court found the Dallas-based fund and Paul Yoo, head of its Korean unit, guilty of stock manipulation following the takeover of the Korea Exchange Bank in 2003.

The court sentenced Yoo to five years in prison and he was immediately taken into custody. KEB and its main shareholder Lone Star were each fined 25 billion won ($26.5m).

It was the first court ruling in a years-long legal battle between prosecutors and the Dallas-based fund.

The American Chamber of Commerce said last month that Lone Star’s legal troubles are scaring foreign investors away from Asia’s fourth largest economy.

The verdict has put into question Lone Star’s plan to sell its 51 per cent stake in KEB to global giant HSBC for 6.3 billion dollars. The US fund was forced to scrap an earlier sale to Kookmin Bank, South Korea’s largest lender.

South Korea’s Financial Supervisory Service on Friday reiterated it would withhold approval for the HSBC deal until all legal problems are sorted out. Yoo and Lone Star both said they would appeal.

The fund in a statement said there is ‘simply no credible evidence to support the court’s findings.’ Lone Star, which insists it did nothing wrong, bought 50.5 per cent of KEB for about 1.5 billion dollars in October 2003 and decided to merge the bank and its separate credit card unit a month later.

Yoo and the US fund were accused of spreading false rumours to drive down the card unit’s share price so it could be absorbed more cheaply into the main bank. Lone Star chairman John Grayken testified on Yoo’s behalf last month.

He was not charged but was temporarily banned from leaving the country while prosecutors questioned him.

Lone Star ‘was intent on spreading false rumours about a capital reduction of the Korea Exchange Bank’s credit unit,’ said the court in its judgement. The fund in its statement said the card unit was on the verge of bankruptcy at the time.

It said Yoo and other KEB directors, including several non-Lone Star members, acted properly and never attempted to manipulate the share price.

The case was part of a broader investigation into claims that Lone Star had lobbied local officials to exaggerate the financial woes of KEB so that it could buy the country’s sixth-largest lender at a fire-sale price.

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