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Prosecutors will ask Supreme Court to review the case
June 25, 2008
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| A Korean appeals court yesterday cleared Lone Star Funds of manipulating the stock price of a former credit card unit of Korea Exchange Bank. The ruling, which overturns a lower court decision, allows the U.S. private equity firm to remain the bank’s largest shareholder. “There is no evidence to prove Lone Star and [Paul] Yoo are guilty of stock price manipulation,” Seoul High Court Judge Koh Eui-young said yesterday in the ruling. Yoo, the former head of Lone Star’s Korea operation, was cleared yesterday of evading 2.1 billion won ($2.03 million) in taxes. He was still found guilty of other charges including a failure to appear at a National Assembly hearing as a witness. He was also convicted of separate charges of breach of trust linked to Lone Star’s other investment deals in Korea. The court handed Yoo a suspended jail sentence of two and a half years. The verdict, closely linked to Lone Star’s stalled plan to sell KEB to British banking giant HSBC, was quickly challenged by prosecutors, who said they will take the case to the Supreme Court. After the ruling, the nation’s financial regulator said it will defer its approval of the KEB sale, leaving its fate undecided. “The prosecution said they will appeal the acquittal, so there are still legal proceedings left,” said Yoo Jae-hoon, spokesman of the Financial Services Commission. “At this point, it is inappropriate to go ahead with the process of the KEB sale.” The U.S. buyout firm’s plan to sell a majority stake in KEB to HSBC at a price tag of $6.3 billion has been pending regulatory approval. The deal, which has sparked a public outcry here over the size of the expected profit Lone Star stands to make, may not meet a July 31 deadline for regulatory approval. Both Lone Star and HSBC welcomed the verdict. “We maintained our innocence throughout this process and are pleased today to have the court’s confirmation,” said Lone Star Chairman John Grayken in a statement. “We hope that now we can all put this behind us and get back to business,” he continued. Lone Star purchased KEB in 2003 for $1.2 billion, then later purchased a former KEB credit card unit separately. In February this year, the Seoul Central District Court found both Lone Star and Paul Yoo guilty of driving down the stock price of KEB’s former credit card unit by spreading false rumors about capital write-downs. Their initial conviction was considered a potential setback for foreign companies looking to invest here. Yoo was indicted last year on charges of spreading a false rumor that KEB Card’s capital would be reduced before its merger with its parent company, KEB. Prosecutors argued that the company did so to avoid paying shareholders millions of dollars in appraisals right before the merger, because KEB Card’s stock price dropped. Yesterday’s ruling said the capital write-down plan discussed at a board meeting on Dec. 20, 2003 and what Yoo said in a media interview the next day were coherent, thus there is no ground to question Lone Star’s actual intention of the capital write-down. According to industry sources, Lone Star has an option to sell off its 51 percent stake in KEB on Korea’s stock exchange, but it is unlikely that the investment firm will risk the potential financial loss. By Ser Myo-ja Staff Reporter [myoja@joongang.co.kr] |
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