U.S. buyout fund could lose status as biggest shareholder of KEB


The Seoul High Court is likely to find the former CEO of Lone Star Funds’ Korean unit guilty on Oct. 6, according to industry sources.

In March, the Supreme Court overturned the High Court’s earlier ruling that acquitted former Lone Star Korea CEO Paul Yoo for his alleged manipulation of Korea Exchange Bank’s credit card affiliate in 2003.

“There is little possibility that the High Court will judge Paul Yoo not guilty again, reversing the Supreme Court’s view,” an official of the Financial Services Commission said.

Under the scenario, the U.S.-based buyout fund could lose status as the biggest shareholder of Korea Exchange Bank according to the nation’s banking laws.

The laws entitle the FSC to forcibly order Lone Star to sell most of its stake in KEB.

The FSC official said the key issue is whether the financial regulator will specify the method of the stake sale in detail to prevent Lone Star from handing over their KEB shares to a particular investor.

Lone Star signed a preliminary deal with Hana Financial Group to trade KEB shares in November 2010. The FSC delayed the endorsement ― or rejection ― process due to the ongoing trial at the court.

If the FSC simply orders a stake sale, Lone Star may choose to sell the dominant stake to Hana Financial while KEB’s stock price stays lower compared to last November. The fund could also receive payment for management premium from Hana Financial.

But under the scenario that the FSC instructs Lone Star to sell shares on the stock market to anonymous investors at market-determined prices, Hana Financial could possibly fail to take over KEB.

Another possibility is further postponement of the KEB sale with possible legal countermeasures from Lone Star.

But some industry sources issued the possibility that the court will turn down any appeal from the fund.

In July, the Seoul High Court put the former Lone Star Korea CEO under court custody, fearing he might run.

The court said detaining Yoo was inevitable, but added that there is also “a possibility that he could run.”

The court also said it considered two factors ― the lower court’s sentence of five-year imprisonment and the Supreme Court’s suggestion that he violated stock trading laws ― when it made the decision against him.

Yoo has been suspected of being implicated in manipulation of stocks of the now-defunct KEB Credit Service, a former unit of Korea Exchange Bank, and allegedly dodging taxes totaling 2.1 billion won ($1.8 million) in 2003.

There are also allegations that he had colluded in the stock manipulation with several executives of the U.S.-based Lone Star Funds.

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