Lawmakers call for halt of foreign fund’s bank sale

With Lone Star investigation ongoing, Assembly members want deal stopped

The alleged manipulation of the stock prices by Lone Star Funds has again raised controversy in the National Assembly.

This time, the controversy involves Korea Exchange Bank (KEB)'s credit card arm that was acquired through merger along with KEB by Texas-based Lone Star in 2003. Lone Star is being investigated by the prosecution for working with KEB to illegally purchase shares of the bank and its card arm at lower-than-market values. Meanwhile, Lone Star is currently in negotiations to sell KEB to Kookmin Bank.

At the parliamentary audit for the Financial Supervisory Commission (FSC) and the Fair Trade Commission (FTC) on November 1, the lawmakers of the ruling and opposition parties called for the suspension of the sale of KEB until the prosecution finishes its investigation into the purchase of KEB and KEB's cerdit card unit. According to Rep. Go Jin-hwa of the main opposition Grand National Party (GNP), if Lone Star manipulated the stock prices of the credit card, the sale of the bank should immediately be stopped. Kim Hyeon-mi of the ruling Uri Party said that if the FCS approves the trade of KEB before Lone Star’s case is concluded by the court, it may mean the government has helped in the fund’s wrongdoings by not stopping the sale.

In response, FSC chairman Yoon Jeung-hyun said that the FSC cannot interfere with the KEB takeover deal between Kookmin Bank and Lone Star without legal grounds.

Kwon Oh-seung, the FTC chairman, said, "As the merger of the companies should be reviewed in various aspects, we cannot stop the proceedings of the merger between Kookmin Bank and KEB."

In a statement released November 1 and reprinted in Bloomberg, Lone Star’s chairman John Grayken said that it was suspicious that among the entire board of KEB, only Lone Star’s executives had become the target of the prosecutors’ investigation. The recent investigation is political in nature, he said, reflecting an unfavorable atmosphere against foreign investors that still lingers in Korean society.

Lone Star had previously stood accused of tax evasion and embezzlement in transactions it made through an alleged tax haven; that investigation is ongoing.