The Seoul High Court ruled that the Texas-based private equity fund and Paul Yoo rigged stock prices of Korea Exchange Bank’s credit card affiliate to help KEB absorb the unit at a lower cost in 2003. Lone Star acquired a majority stake in KEB earlier that year.

Yoo was sentenced to three years in prison, while the U.S. buyout fund was fined 25 billion won ($21 million). KEB, which was indicted on the same stock price manipulation charge, was acquitted.

Yoo and Lone Star can appeal to the Supreme Court within a week.

The former Korean head has been accused of spreading false rumors about a capital reduction of the card unit, in collusion with Lone Star and KEB, which depressed its stock price.

The high court verdict was closely watched but widely expected, as the Supreme Court returned the case back to the court for a retrial, which acquitted the accused for the charges.

For years, Lone Star has been locked in a series of legal battles with Korean authorities, which have hampered its efforts to divest out of the Korean bank.

The ruling Thursday is also expected to affect its planned sale of its 51 percent stake in KEB to Hana Financial Group. Korea’s financial regulator, which has the right to endorse or reject the bank sale, has been delaying any decision, citing an ongoing trial.

By Lee Sun-young (milaya@heraldcorp.com)