Lone Star found guilty of manipulating KEB's stocks
A Seoul court has found US buyout fund Lone Star guilty of manipulating the stock prices of Korea Exchange Bank (KEB) in 2003, and has ordered the fund to pay KRW25 billion ($21 million) in damages.
The court additionally sentenced Paul Yoo (pictured), former head of Lone Star's South Korean operations, to three years in prison. He is charged with spreading rumors about KEB's credit card unit, KEB Credit Services, in 2003 to diminish its share price, making it cheaper for acquisition.
In 2008, a Seoul court found Yoo guilty of manipulating the stock, and sentenced him to five years in jail, but that sentence was later reduced to a two-and-a-half year term. That term was suspended for three years after a court found Yoo guilty of breach of trust but not price manipulation, which has been overturned in this most recent ruling.
Lone Star acquired its majority 51% stake in the bank for $1.3 billion in 2003, which it will likely be forced to sell down following the ruling. The court is expected to find Lone Star unfit to be KEB's majority shareholder, which could lead to a 10% ownership cap.
Lone Star has sought to sell its stake in KEB for five years, but regulators have repeatedly blocked and stalled the process until it could resolve issues surrounding its purchase of the bank. Hana Bank is the leading contender to acquire Lone Star's shares, and offered to pay $4.2 billion last year. Regulators have not approved that deal, but they agreed to decide on the transaction shortly after making Lone Star's ruling.
Lone Star first announced its intention to exit KEB in 2006 to domestic player Kookmin Bank for $7 billion. Regulators rejected that transaction, leading Lone Star to relaunch the action process in early 2010. Since then, players such as MBK Partners and the Australia and New Zealand Banking Group (ANZ) have also talked to Lone Star about acquiring the asset, but regulations and financing hurdles have resulted in Hana Bank being the last-standing bidder.
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