Lone Star Cleared of Stock Fraud Charges

A Seoul appellate court yesterday cleared the U.S.-based fund Lone Star of manipulating the stock prices of Korea Exchange Bank, which it bought in 2003.

Yoo Hoe-won, head of Lone Star’s Seoul branch, was acquitted of spreading false rumors of a capital reduction to lower the bank’s sale price in November 2003.

The ruling said, “Considering the developments at the time, it is difficult to conclude that Lone Star did not consider a capital decrease at all.”

Yoo had earlier been sentenced to five years in prison with a stay of execution of two years and six months for failing to appear at the National Assembly and selling bonds at giveaway prices.

The court also overturned a fine of 25 billion won against Korea Exchange Bank and LSF-KEB Holdings SCA, the largest shareholders of the bank, an amount more than double the alleged excessive profit from the bank’s sale.

Immediately after the trial, prosecutors announced that they will file an appeal with the Supreme Court.

Financial authorities also said they will postpone their decision whether to approve HSBC’s purchase of the bank’s shares from Lone Star, thus the bank’s sale is expected to drag on.

Financial Services Commission spokesman Yoo Jae-hoon said, “Since prosecutors say they will file an appeal with the Supreme Court, the charges have not been cleared. Allowing the deal at this point is not right.”

wing@donga.com jarrett@donga.com