A local court on Thursday issued arrest warrants for two executives of U.S. private equity group Lone Star Funds on charges of manipulating stock prices, saying prosecutors now have enough grounds for seeking their arrest.
The warrants were issued after the Seoul Central District Court rejected two previous requests by prosecutors to arrest Lone Star Vice Chairman Ellis Short, General Counsel Michael Thompson and Yoo Hoe-won, the head of Lone Star Advisors Korea, citing a need for additional investigation.
Judge Min Byung-hun said the prosecutors fully clarified questions on the need to arrest Short and Thompson, both Americans living in their country, and bring them to trial in South Korea under an extradition treaty between the two countries. There has been progress in the prosecution's investigation to prove criminal charges against them, the court said.
Prosecutors say they have demanded Short and Thompson come to South Korea to undergo questioning six times, but the executives refused to comply.
The court, however, refused to issue arrest warrants for Yoo and Jeong Heon-ju, the former head of Lone Star's Seoul office, saying they are not considered likely to try to flee or destroy evidence. Yoo and Jeong are in South Korea.
The three current executives are suspected of manipulating the stock price of the Korea Exchange Bank (KEB)'s credit card arm in November 2003 following Lone Star's takeover of the bank, South Korea's fifth largest.
Yoo was also charged with embezzlement, tax evasion and causing about 24 billion won (US$25.5 million) in damages to his company through breach of trust by selling the company's bad loans at a below-market price. Prosecutors additionally sought an arrest warrant for Jeong on tax evasion charges when they filed the third request for warrants Wednesday.
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 caused 22.6 billion won in damages to smaller shareholders of the credit 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.
With the warrants against Short and Thompson, the prosecution plans to take steps to request their extradition from the U.S. as soon as possible. The extradition treaty allows for the transfer of criminals and those suspected of having committed a crime between the two nations.
Short said he was disappointed by the court decision to issue a warrant for him.
"We have offered repeatedly to come to Korea for questioning, as long as we are allowed to leave," Short said in an e-mail statement, according to Bloomberg News. "It is up to the prosecutors to decide whether they really want to determine the truth in this investigation, or simply want to try to intimidate us."
The investigation, however, is feared to hit a snag if Yoo, the central figure in the stock manipulation case, refuses to cooperate. It may take at least two to three years before the U.S. law authorities decide on whether to extradite the executives.
After the court refused to grant a warrant for Yoo, senior investigators at the Supreme Prosecutors' Office called a closed-door meeting to discuss their future course of action. The meeting's results were not available, but Chae Dong-wook, a senior prosecutor, said in a daily press briefing that one of the options could be to end the investigation sooner than planned.
"It was a mistake for the court to reject our request based on unacceptable reasons," Chae said, stressing that Yoo played the main role in the KEB takeover as the No. 1 man in Lone Star's Seoul office.
The prosecution is now trying to find ways to question Yoo within the boundaries of the law, Chae added.
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 have already arrested Lee Kang-won, former KEB chief, on charges of taking a leading role in the alleged undervaluation of the bank.
Han Jong-sun, president of Hyundai Marine and Fire Insurance, was arrested Wednesday on suspicion of accepting US$1.05 million in kickbacks from Lone Star in return for helping the company acquire KEB in 2003. Ha was working as a lawyer for the U.S. company at the time.
Seoul, Nov. 16 (Yonhap News)
Court issues arrest warrants for two Lone Star executives |
