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Nine officials to determine fate of Lone Star Funds

Attention focused on whether stern measures will hit U.S. buyout fund

The nine-member panel of the Financial Services Commission is scheduled to unveil its measures against Lone Star Funds, convicted of stock rigging, on Friday.

The members include FSC Chairman Kim Seok-dong, Financial Supervisory Service Gov. Kwon Hyouk-se, FSC Vice Chairman Choo Kyung-ho, Vice Finance Minister Shin Je-yoon, Korea Deposit Insurance Corp. president Lee Seung-woo, and Bank of Korea senior deputy Gov. Lee Ju-yeol.

FSC Chairman Kim clarified that the panel will decide on its action “according to the laws and principles” during his report to the National Policy Committee of the National Assembly on Thursday.

He told lawmakers that the nine members are reviewing legal backgrounds on whether to take “stern action” on Lone Star, which was given a guilty verdict for manipulating stocks of Korea Exchange Bank’s credit card affiliate.

A stern action may include ordering the U.S.-based fund to sell most of its stake in KEB on the stock market.

Many of the ruling and opposition lawmakers of National Policy Committee called for Kim to ban Lone Star from enjoying management premiums from the coming stake disposal.

Later in the day, three lawmakers including Rep. Ooh Che-chang of the Democratic Party, visited the FSC building and issued a warning that the FSC will be subject to parliamentary investigation if it allows the fund to rake in management premiums following a lukewarm regulatory action.

Concerning the growing speculation that the fund has been a non-financial investor, ineligible to own a Korean bank, Kim said “the issue will also be discussed at the (nine members’) extraordinary meeting (slated for Friday).”

Following the guilty verdict on the fund, the FSC said that it is considering ordering it to sell 41.02 percent of its total 51.02 percent stake in KEB.

A Korean bank’s biggest shareholder that violates the nation’s banking laws will be disqualified from owning the lender, being barred from holding more than a 10 percent stake.

According to decision of the panel, the success or failure of the preliminary deal between Hana Financial Group and Lone Star could be determined.

Lone Star signed a preliminary deal with Hana Financial to trade KEB shares in November 2010. The FSC delayed the endorsement ― or rejection ― process due to the stock rigging trial at the court.

If the FSC simply orders a stake sale, Lone Star may choose to sell the dominant stake to Hana Financial while KEB’s stock price stays quite low compared to last November. The fund could also receive payment for management premium from Hana Financial.

But under the scenario that the FSC instructs Lone Star to sell shares on the stock market to anonymous investors at market-determined prices, Hana Financial could possibly fail to take over KEB.

By Kim Yon-se (
catch table
Korea Herald daum