Regulator apparently determined to take stern action against Lone Star Funds


Financial regulators hinted at the possibility that they could order Lone Star Funds, which was convicted of stock manipulation, to sell most of its stake in Korea Exchange Bank at market-determined prices on the stock market.

A senior official of the Financial Services Commission on Wednesday dismissed speculation that the regulator will simply order Lone Star to sell the KEB shares with no specific conditions, which may allow the U.S.-based fund to select an acquirer through an over-the-counter sale.

“Nothing has yet to be decided,” he told The Korea Herald. “But we are reviewing the laws as to whether we could attach conditions (in the coming order).”

The attachments may include “ordering Lone Star to sell its stake on the stock market” or “banning the fund from enjoying management premiums instead of allowing it to sell the shares to a particular investor like Hana Financial Group,” according to FSC officials.

The official also said the FSC is closely monitoring the recent situation under which the Constitutional Court is moving to review whether the regulator has neglected its duty of probing the eligibility of Lone Star as the biggest shareholder of KEB.

“We have no choice but to take the injunction (from the KEB union) and petition (from a group of small shareholders of KEB) filed with the Constitutional Court into consideration,” he said.

On Tuesday, unionized workers of KEB filed an injunction with the Constitutional Court to ban the FSC from ordering Lone Star to dispose of its KEB shares without probing the fund’s shareholder eligibility amid high possibility that it has been a non-financial investor, which is banned from owning a Korean bank under the laws.

“We administer the laws. We cannot violate the laws interpreted by the Constitutional Court,” he said.

Asked about whether the regulator will include the issue of Lone Star’s shareholder eligibility in its coming stake sale order, aside from the stock manipulation part, he said it will take some time for the FSC to finalize its decision.

But he added that there is no doubt that newly emerging factors will be included in their decision-making.

His remarks also hint that the FSC could take a wait-and-see attitude for the time being until legal uncertainties are lifted.

The prosecution is also investigating allegations that Lone Star hindered the FSC from legitimately probing its eligibility by not reporting documents verifying the fact that the fund was a non-financial investor in 2003.

Even a group of lawmakers from the ruling Grand National Party are calling for the regulator to take disciplinary measures against Lone Star.

A survey showed that 78 percent of Koreans responded that the FSC should make public the fund’s shareholder eligibility.



By Kim Yon-se and Cynthia J. Kim
(kys@heraldcorp.com)
(cynthiak@heraldcorp.com)