Korean regulators to investigate KEB
South Korean regulators have launched a probe into the inside operations of Korea Exchange Bank (KEB) to ensure that the lender complied with court orders to fire members of its board related to embattled owner Lone Star.
The probe comes the same week that US-based Lone Star was ordered to sell down the majority of its 51% stake in KEB to 10% or less within six months.
Lone Star was found unfit to be KEB's majority owner after a court found the buyout firm guilty of manipulating the bank's stock price around the time of its 2003 purchase, and was ordered to pay KRW25 billion ($21 million) in damages. In conjunction with that ruling, the court sentenced Paul Yoo (pictured), former head of Lone Star's South Korean operations, to three years in prison. He was 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 a subsequent order, KEB was told to dismiss three members of its board associated with Lone Star, including Yoo. However, sources close to the company told Reuters that KEB has yet to comply with the order.
Inspectors are also poised to investigate additional factors "that could mar the lender's financial health," Korea's Yonhap New Agency reported, which includes trawling through KEB documents to determine whether additional benefits were granted to Lone Star.
In the meantime, Hana Financial has been waiting in the wings to acquire Lone Star's stake in the bank for a year. Hana offered to buy the stake for $4.2 billion in November 2010, but regulators withheld their blessing for the deal until they could resolve Lone Star's legal issues.
Ongoing reports suggest that Lone Star hopes to close the sale by the year's end.
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