Prosecutors search Seoul branch of Citigroup subsidiary

Prosecutors raided the Seoul office of a Citigroup affiliate Tuesday as part of their investigation into possible stock-price rigging by Korea Exchange Bank (KEB) and its key shareholder, the U.S. equity fund Lone Star, a senior prosecutor said.

Prosecutors searched the Seoul office of Citigroup Global Markets Inc., seizing three boxes of documents and a desktop computer, said Chae Dong-wook, the top prosecutor in charge of the case.

"We came to search the company because it was created through a merger with Salomon Smith Barney, which provided a consulting service for KEB in November 2003 when the bank took over KEB Credit Service Co.," Chae told reporters.

Four prosecutors and about 20 police investigators were involved in the search, he added.

KEB and Lone Star have been under criminal investigation since late last month over allegations that they spread false rumors of a capital write-down by the Korean lender's credit card unit in order to buy a controlling stake in the company at a below-market price.

Ten people, including Yoo Hoe-won, the head of Lone Star Advisors Korea and Lee Dal-yong, former vice president of KEB, are prohibited from leaving the country during the investigation.

The prosecution is also looking into suspicions surrounding the U.S. fund's takeover of the bank at a fire-sale price earlier in 2003.

In June, state auditors concluded that former executives of the lender had deliberately underestimated the bank's financial health to facilitate the takeover deal. They also said South Korea's financial regulators gave their tacit approval to the underestimation without the proper verification, but that it did not find any wrongdoing by Lone Star in its acquisition of KEB.

With their probe into Lone Star's possible irregularities now entering its final stage, prosecutors plan to expand the scope of the investigation to incorporate Morgan Stanley, one of the world's leading financial service companies, and two local accounting firms that acted as consultants to Lone Star for its takeover of KEB.

Starting as early as next week, high-ranking government officials will be summoned for questioning over their role in the deal, according to Chae.

The officials may include Kim Jin-pyo, who served as deputy prime minister for economy, Lee Jung-jae, the former chairman of the Financial Supervisory Commission and the Financial Supervisory Service, and Finance Minister Kwon O-kyu, who was the chief policy advisor of President Roh Moo-hyun.

Seoul, Oct. 17 (Yonhap News)