Ex-Minister Named in Lone Star Probe

The Central Investigation Department of the Supreme Prosecutors’ office said on November 1 that it plans to summon former Vice Prime Minister and Minister of Finance and Economy Lee Hun-jae as a witness in its investigation of Lone Star’s suspicious buyout of Korea Exchange Bank (KEB) at a knockdown price.

“We haven’t found specific criminalities yet, but we will investigate on suspicions relating to Lee. We will soon decide when and how to investigate him,” said Chae Dong-wook, Investigation Planning Director.

Lee was an advisor to Kim & Chang, a law firm that provided legal advice to the Texas-based fund in 2003 when it bought KEB.

Lee is suspected that at that time he offered legal advice to help Lone Star be qualified for purchasing KEB, using his personal connections in the financial authorities, including Byun Yang-ho, then director of finance policy division of Ministry of Finance and Economy, and Kim Seok-dong, then standing commissioner and current Vice Chairman of Financial Supervisory Commission.

Earlier this year, the prosecution said that they need to investigate Lee regarding Lone Star’s purchase of KEB, and banned his overseas trips on June 16, this year.

The U.S. private equity fund issued a statement on the issuance of arrest warrant on its executives, saying “Korea’s prosecutors are investigating based on vague suspicions without clear evidence. This has political intentions.”

Lone Star Chairman John Grayken said in a statement, “The allegation that we manipulated share prices of KEB Credit Card by spreading false information is groundless. Lone Star was urged by the Korean financial supervisory authorities to help the card issuer. This investigation stemmed from anti-foreign investor sentiment, still persistent in some parts of Korean society. I am very disappointed.”

The prosecution dismissed his remark, saying, “We have evidence and we are carrying out investigation according to due procedure.” It is considering prosecuting Lone Star headquarters in the U.S. as well as its executives.

“We notified three executives including Vice Chairman Ellis Short to appear in the court as suspects, and when their cases are confirmed, we are committed to prosecute them. Instead of defying summons citing lack of evidence, they can say what they have to say when questioned,” said Chae.

jefflee@donga.com jarrett@donga.com