Pres. of Lone Star’s Korea Office Convicted

A court yesterday found U.S. private equity fund Lone Star Funds, which acquired the credit card unit of Korea Exchange Bank in 2003, guilty of stock manipulation.

The Seoul Central District Court sentenced Yoo Hoi-won, the head of the fund’s Korea office, to five years in prison for manipulating the stock prices of KEB Credit Service and ordered his immediate arrest.

The court fined the bank and LSF-KEB Holdings SCA, a holding company owned by Lone Star, 25 billion won each, more than double the amount of their illegal gains earned through stock manipulation.

Lone Star Vice Chairman Ellis Short and the holding company’s general counsel Michael Thomson, both suspected of colluding with Yoo to manipulate stock prices, were also indicted for violating the Securities Act.

The court ruling said, “We ordered (Yoo’s) immediate arrest since he might flee after receiving a heavy sentence at the first trial. The suspect has been fully guaranteed his right to defend himself in court.”

The Financial Supervisory Commission said, “Until the court announces its final ruling on the ongoing case, we’ll delay judgment on if Lone Star can be the largest shareholder of Korea Exchange Bank and our approval of its acquisition of the bank.”

Accordingly, the American fund will face difficulty closing the sale of the bank with buyer HSBC by late April.

Yoo was indicted for spreading false rumors of a capital reduction at the bank’s credit card unit prior to the bank’s merger with the company in November 2003, to lower the bank’s price.

wing@donga.com larosa@donga.com