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The U.S. private equity fund Lone Star and one of its executives were on Friday found guilty of manipulating the stock prices of Korea Exchange Bank Card, in a case intensely monitored by the international press. The New York Times wrote, "The verdict, if upheld in higher courts, will undermine Lone Star¡¯s repeated arguments that it was victimized by politically motivated prosecutors who are capitalizing on widespread public sentiment against foreign investors."
The Seoul Central District Court sentenced Paul Yoo (58), head of Lone Star¡¯s South Korean operations, to five years in prison and ordered him taken directly to prison from the courtroom on charges of manipulating the stock price of KEB's credit card unit and the earning rates of its funds. The court fined KEB and its largest stockholder W25 billion (US$1=W944) each.
The Financial Supervisory Commission said it would not approve Lone Star¡¯s plan to sell KEB until all legal battles are resolved, so the plan could be on hold for months. That is likely to affect an agreement with HSBC, which wants to buy KEB.
Civil actions against Lone Star are expected to follow. The court ruled Yoo and other Lone Star executives drove down the stock price of KEB¡¯s credit card unit by spreading false rumors of an equity reduction program before it took over the credit card unit in November 2003. In doing so, they damaged the interest of minority shareholders who held a 31.4-percent stake in the company, while making profits for Lone Star and KEB.
The New York Times also speculated the ruling will affect on Lone Star¡¯s plan to sell its majority stake to HSBC Holdings, which has agreed to pay US$6.3 billion. Lone Star faces another case involving suspicions that it bought KEB at a knockdown $1.2 billion in 2003, ¡°as the country was trying to rescue its distressed banks in the aftermath of the Asian financial crisis of 1997 and 1998. Soon afterward, the bank absorbed KEB Credit Service.¡± The Financial Times and the business magazine Forbes, which have taken Lone Star¡¯s side, reported that the ruling cast dark clouds over Lone Star's attempt to sell KEB.
Bloomberg News, in a similar vein, warned the ruling could accelerate the retreat of foreign investors from Asia's fourth-biggest economy. "The court decision is likely to discourage foreign investments in Korea, where unpredictability about the legal system is raising investment uncertainties for foreigners."
(englishnews@chosun.com )
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