Regulator ordered to publicize on Lone Star

FSC official says the U.S. fund was ‘financial investor’ between 2003 and 2006





The Supreme Court ordered the Financial Services Commission to make public the fund’s eligibility as the biggest shareholder of Korea Exchange Bank on Thursday.

The FSC, which lost the original trial in 2007 and the second trial in 2009 in a lawsuit filed by Solidarity for Economic Reform, appealed to the highest court two years ago.

The FSC and the Financial Supervisory Service are poised to clarify their stance on Lone Star Funds by saying that the biggest shareholder was eligible to own Korea Exchange Bank, at least between 2003 and June 2006.

“We will follow the court’s ruling. Our position is that Lone Star could be regarded as a financial investor, and was eligible to own a Korean bank at least between 2003 and June 2006,” FSC spokesman Lee Byung-lae told The Korea Herald.

Before the suit, the regulator refused to publicize its internal information as to whether Lone Star had been eligible to own KEB under banking laws.

The regulator failed to take the issue of whether Lone Star has been a financial or non-financial investor into consideration in its action on the fund last Friday.

The FSC only considered an earlier verdict that the fund manipulated stocks of KEB’s credit affiliate and ordered it to sell most of its KEB shares to any investor.

There is a possibility that the FSC will be held accountable for its lenient action, amid growing calls for the regulator to take punitive action on the fund.

Depending on the verdict, Lone Star’s acquisition of KEB in 2003 could be regarded as invalid and the fund’s preliminary deal with Hana Financial Group to trade KEB shares could also be nullified.

On Wednesday, a group of small shareholders of KEB filed an injunction with the Constitutional Court to suspend the FSC’s Nov. 18 action on the fund.

The injunction also included a petition to ban the regulator from endorsing the M&A deal between Lone Star and Hana Financial before legal uncertainties are resolved.

“The regulator has not taken any measures on speculation that Lone Star owns golf courses in Japan (which hints that the fund is a non-financial investor),” they said.

They alleged that the FSC had already been informed of the fact that Lone Star was a non-financial investor and provided the fund with a certain period to sell off the golf courses.

Lone Star has been suspected of owning 130 golf courses worth about 3.7 trillion won ($3.2 billion) in Japan.

The nation’s banking laws ban an investor with its non-financial assets exceeding 2 trillion won from controlling a Korean bank.

Further, speculation recently arose that the U.S. fund is moving to sell the golf courses following criticism among ruling and opposition lawmakers as well as the KEB union in Korea.

By Kim Yon-se (kys@heraldcorp.com)