Prosecutors give ultimatum to Lone Star executives

South Korea's state prosecutors delivered an ultimatum to two executives of U.S. equity fund Lone Star urging them to come to Seoul to face an investigation into their alleged stock price manipulation, a senior prosecutor said Thursday.

"We sent summonses to Lone Star Vice Chairman Ellis Short and General Counsel Michael Thompson, both in the United States, asking them to attend the South Korean prosecution by 10 a.m. next Monday," Chae Dong-wook, a prosecutor at the Supreme Prosecutors' Office, told reporters.

"This is our final ultimatum. We urge them to come to South Korea and cooperate with the investigation," he said.

The two executives of the Lone Star headquarters are suspected of manipulating the stock prices of Korea Exchange Bank (KEB)'s credit card unit in November 2003 after Lone Star's takeover of the bank.

Prosecutors have delivered summonses to the suspects more than five times since Oct. 24, but the Americans refused to travel to South Korea to face criminal investigation, Chae said.

A local court rejected the prosecutors' second application for arrest warrants for the Lone Star officials on Wednesday, saying it was unclear whether they directly profited from the alleged manipulation. Chae said the prosecution will file a third request next week.

The prosecution plan to take steps to extradite the suspects from the U.S. as soon as the court allows the arrest, he added.

Seoul and Washington have a criminal extradition treaty that allows for the transfer of criminals and those suspected of having committed a crime. But it is unclear whether the court will accept the third request.

Prosecutors claim Lone Star spread false rumors of a capital write-down by the Korean lender's credit card unit in order to cut the fund company's purchase price for the card unit. It was merged into KEB, whose largest shareholder was Lone Star, the following year.

The card company's stock price nose-dived from 6,700 won to 2,550 won a share in a week after the rumors began to spread.

Prosecutors say, citing financial officials here, that Lone Star is estimated to have made 22.6 billion won (US$17.6 million) in unfair profits from the purchase of shares dumped by small shareholders of the card company.

In South Korea, stock manipulators can face up to 10 years in jail even if they didn't directly gain from the manipulation.

Lone Star has consistently denied any wrongdoing, calling the investigation "politically motivated" and "driven by anti-foreign investor sentiment."

"We don't discriminate against Lone Star just because it is a foreign equity fund," Chae said. "We are conducting the investigation according to global standards and principles to find the truth."

Lone Star has also been under investigation by prosecutors since March over allegations that the financial strength of KEB was deliberately underestimated to help the fund purchase a majority stake in the troubled bank at a below-market price.

The U.S. company bought a 50.5 percent stake in KEB for 1.4

trillion won in 2003, and signed an agreement in May to sell its increased 64.62 percent stake to Kookmin Bank, South Korea's top lender. The deal, which is expected to give it a profit of more than 4 trillion won, has been delayed as prosecutors examine allegations of wrongdoing by the U.S. fund. In a related move, Chae indicated the prosecution is investigating whether Lone Star attempted to bribe South Korean government officials of economy-related ministries in the takeover process. Ha Jong-seon, who was a legal counsel for Lone Star's Seoul office at the time and is now president of Hyundai Fire & Marine Insurance Co., is believed to have been the middleman between Lone Star and the officials. He is suspected of taking about 2 billion won in payments from the equity fund in return for his lobbying activities.

"We summoned Ha, Lee Kang-won, the jailed former KEB president and Byeon Yang-ho, the former head of the Finance-Economy Ministry's financial policy bureau, for questioning this morning on their possible involvement," Chae said.

Prosecutors also plan to call in Lee Hun-jai, the former deputy prime minister for economy, later this month to ask if he used his undue influence to complete the deal. Lee was an advisor of a local law firm working for Lone Star in 2003.

Seoul, Nov. 9 (Yonhap News)