Prosecutors again seek warrants for Lone Star executives

Prosecutors again sought arrest warrants for the three executives of U.S. equity fund Lone Star on charges of stock manipulation Wednesday after two previous requests for warrants were rejected by a local court, prosecution officials said.

"We again filed a request today to arrest the firm's Vice Chairman Ellis Short and General Counsel Michael Thompson and Yoo Hoe-won, head of the company's Seoul office," Chae Dong-wook, a senior prosecutor at the Supreme Prosecutors' Office, told reporters. "We think that we have fully clarified questions raised by the court in relation to the warrants."

The three are suspected of manipulating the stock price of the credit card arm of South Korea's fifth-largest lender, Korea Exchange Bank (KEB), in November 2003 following Lone Star's takeover of the bank.

The Seoul Central District Court rejected the second request for warrants a week ago, saying the prosecution's explanation for the need to bring Short and Thompson, both American nationals living in the United States, to face criminal investigation in South Korea was still "not persuasive." The court also said more evidence was needed to prove Yoo's leading role in the stock manipulation.

Prosecutors have demanded Short and Thompson attend the Seoul prosecution six times, but they refused to comply with the summons without providing any justification, Chae said.

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

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.

Yoo was originally charged with embezzlement and causing about 10 billion won in damages to his company through breach of trust by selling the company's bad loans at a below-market price, and charges of tax evasion were added, Chae said.

Prosecutors increased they estimated the amount of damages as 24 billion won when they filed the new application, Chae said.

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 at a discount price.

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."

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

"We will call him in for questioning when the time is ripe," Chae said.

Seoul, Nov. 15 (Yonhap News)