Kim Seok-dong, chairman of the Financial Services Commission, said Thursday he was “100 percent” confident the Seoul government would win a case against Lone Star Funds over its claim for damages regarding the sale of Korea Exchange Bank.

Lone Star Funds said last month it will initiate arbitration for its claim against the Korean government for delaying the sale of the Dallas-based private equity firm’s controlling stake in KEB.

“The Korean government will win under any circumstance, even if it becomes an investor-state dispute case,” Kim told reporters in a luncheon meeting.

“We were mindful that such disputes could occur, and handled the KEB acquisition (by Hana Financial Group) strictly and transparently according to law and principle.”

The U.S. buyout fund handed in a notice to the Korean Embassy in Belgium last month requesting consultations over its claim as it is required to notify the Seoul government at least six months before actual initiation of the arbitration under a Korea-Belgium investment guarantee treaty. According to the treaty, the case could be handled as an investor-state dispute, Lone Star said, adding that the arbitration will be filed in November 2012.

“Lone Star was convicted by Korea’s top court of manipulating the stock price of KEB, which is a major crime internationally,” Kim said.

“It is an unshakable fact that Lone Star rigged stock prices, and we do not pay damages to a company found guilty of such crime.”

Officials from the ministries of finance, justice, the National Tax Service and the FSC are preparing for a legal battle with Lone Star in a working-level taskforce launched under the prime minister’s office.

Lone Star, which bought a 64.6 percent stake in KEB in 2003 for $1.2 billion, was given the green light early this year to sell its 51.02 percent stake to Hana Financial Group for $3.45 billion. Its attempts to sell the controlling stake to Kookmin Bank and HSBC fell through in 2006 and 2008, respectively.

Kim also said Thursday that the eurozone fiscal and financial crisis was going to be the biggest transition point in the history of capitalism since the Great Depression in the 1930s which marked the shift from laissez-faire to modified capitalism.

“A new paradigm that reinterprets the social role of finance, and emphasizes market stability, soundness and transparency of the financial industry, and protection of consumers and investors will be introduced,” he said.

By Kim So-hyun (sophie@heraldcorp.com)