Financial regulators plan to unveil Friday their stance on whether to punish Lone Star Funds for stock manipulation.

The Financial Services Commission said Wednesday it would hold an extraordinary meeting, composed of a nine-member panel, on Nov. 18 to discuss detailed ways to order the fund to sell most of its stake in Korea Exchange Bank.

The regulator’s meeting is drawing wide interest “in terms of abusing authority or not” as the Supreme Court has yet to rule on whether the FSC should make public the eligibility of Lone Star as the biggest shareholder of KEB.

The Supreme Court has been reviewing the appeal from the FSC, which lost the original and second trials.

Should the FSC take measures only against Lone Star’s stock rigging without taking the ongoing trial into consideration, the regulator may have to take serious criminal responsibility.

If the fund is found to have been a non-financial investor, the FSC may be pressured to confiscate Lone Star’s KEB shares as the fund’s deal to take over the local bank in 2003 would originally be invalid.

Further, the issue of the fund’s shareholder eligibility involving the FSC’s obligation has also been under the scrutiny of the Constitutional Court and the prosecution, respectively.

“I believe the panel members will also consider the issue on the fund’s shareholder eligibility before making their final decision,” a senior FSC official said.

He added that the regulator will mention its position ― about the growing speculation that the U.S. fund is ineligible to own KEB under the local banking laws ― at a news conference after the extraordinary meeting.

For only the stock manipulation case, the primary issue is whether the regulator will allow Lone Star to rake in management premiums totaling at least 1 trillion won ($877 million) by providing the fund with rights to select an acquirer during the coming forced stake sale.

If the FSC does not attach any conditions in its instruction of the stake sale, Hana Financial Group may be entitled to take over KEB via regulatory approval procedures under its preliminary deal with Lone Star in November 2010.

FSC officials have said they would not rule out the possibility that the panel will take stern action against the fund ― ordering it to dispose of its shares “on the stock market” as an attachment ― banning from it from selecting a preferred acquirer.

Meanwhile, an official issued the possibility that the nine members including FSC chairman Kim Seok-dong will fail to reach a final consensus on Friday.

By Kim Yon-se (kys@heraldcorp.com)