The Financial Services Commission has been under mounting pressure to take stern action against Lone Star Funds, which was convicted of manipulating stocks of Korea Exchange Bank’s credit card affiliate.

In particular, a group of lawmakers, professors and lawyers are calling on the FSC to reject Hana Financial Group’s application to acquire KEB from Lone Star.

Their calls come amid speculation that the FSC may “simply” order the U.S.-based fund to dispose of its stake in KEB, a decision that could pave the way for Hana Financial to take over the shares.

If the regulator allows Lone Star to enjoy a huge management premium through the order, it could amount to abuse of power and be subject to criminal investigation, a group of lawmakers said.

“(Such action) without taking punitive measures against Lone Star, which lost the status of KEB’s biggest shareholder due to its critical malfeasance, would be the joint committing of a crime,” an opposition lawmaker on the National Policy Committee in the National Assembly said.

Further, the Constitutional Court is reportedly moving to review whether the FSC neglected its duty to probe the shareholder eligibility of Lone Star, accepting a petition from a group of small shareholders.

While the regulator had said the U.S. fund cannot be regarded as a non-financial investor, many have argued that it is one. Korean law bans non-financial investors from controlling a bank.

Voices calling for tougher punitive measures are also coming from the Lawyers for a Democratic Society, a progressive association of lawyers. It is strongly calling on financial authorities not to approve the preliminary deal between Lone Star and Hana Financial.

Lawyers including Kwon Young-kook argued that the Hana-Lone Star deal has lost legal validity as the financial group signed a deal with an “ineligible” bank shareholder.

Citing similar cases related to ordering stake sales, the lawmakers and lawyers say the FSC should instruct the fund to dispose of its KEB shares to anonymous investors at market-determined prices on the stock market.

A group of professors including Jun Sung-in of Hongik University also says it is unnecessary for the regulator to review the documents supplied by Hana in its application to absorb KEB as its subsidiary.

Unionized workers of KEB raised the issue of the neutrality of the FSC’s senior panel meeting, which is scheduled to fine-tune the coming action on Lone Star.

Out of the nine panel members, three figures were closely involved in Lone Star’s takeover of KEB in 2003, the union said. They are FSC Chairman Kim Seok-dong, FSC Vice Chairman Choo Kyung-ho and FSC non-standing commissioner Shim In-sook, who worked as an attorney for Lone Star.

“There is a high possibility that they (the three figures) will attempt to conceal their faults by voting in favor of Lone Star in the coming panel meeting,” the union said.

The FSC plans to make a final decision on whether to issue simple instructions or punitive instruction as early as next week.

There have been allegations that several senior FSC officials took the lead in handing over KEB to Lone Star in 2003 by fabricating the bank’s BIS capital adequacy ratio.

In past parliamentary audits of the FSC, ruling and opposition lawmakers demanded that the regulator shed light on the allegations. But the FSC has so far failed to satisfy them with an explanation.

By Kim Yon-se (kys@heraldcorp.com)