Regulator expected to be ordered to reveal the fund’s bank shareholder eligibility


The Supreme Court will deliver a verdict on a key issue regarding Lone Star Funds on Thursday, possibly forcing the Financial Services Commission to make public the fund’s eligibility as the biggest shareholder of Korea Exchange Bank.

The FSC, which lost the original trial in 2007 and the second trial in 2009 in a lawsuit filed by Solidarity for Economic Reform, appealed to the highest court two years ago.

Before the suit, the regulator refused to publicize its internal information as to whether Lone Star had been eligible to own KEB under banking laws.

Despite speculation that the U.S.-based buyout fund is a “non-financial” investor barred from owning a local bank, the FSC, which approved Lone Star’s takeover of KEB in 2003, has yet to clarify its final ruling on the issue.

Sources said the possibility that the Supreme Court will reverse the verdict from the original and second trials is low.

In the earlier trials, the FSC reportedly promised that it “would determine whether to make public the fund’s shareholder eligibility within two months (following the final verdict).”

The coming verdict is drawing interest as the regulator failed to take the issue of whether Lone Star has been a financial or non-financial investor into consideration in its action on the fund last Friday.

The FSC only considered an earlier verdict that the fund manipulated stocks of KEB’s credit affiliate and ordered it to sell most of KEB shares to any investor.

If the court rules that Lone Star has been a non-financial investor, the FSC will likely be held accountable for its lenient action, amid growing calls for the regulator to take punitive action on the fund.

Depending on the verdict, Lone Star’s acquisition of KEB in 2003 could be regarded as invalid and the fund’s preliminary deal with Hana Financial Group could also be nullified.

On Wednesday, a group of small shareholders filed an injunction with the Constitutional Court to suspend the FSC’s Nov. 18 action on the fund.

FSC Chairman Kim Seok-dong will likely be under heavier pressure to resign following regulators’ tepid action against Lone Star Funds last Friday.

A group of lawmakers are poised to call for Kim to quit as the top regulator, criticizing the FSC for not taking stern measures against the U.S.-based equity fund.

A group of unionized workers in the financial sector had already said Kim should leave the post. They had continued to argue that the incumbent chairman is not an appropriate figure to take reasonable action against Lone Star, citing his significant role as then-director general when the FSC endorsed the fund’s acquisition of KEB in 2003.

Lawmakers of the National Policy Committee of the National Assembly are now also pushing for the resignation of Kim.

There is speculation that some lawmakers of the ruling Grand National Party asked the presidential office to replace Kim with another figure for the chief regulator post.

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