South Korean prosecutors raided the Seoul office of a Citigroup Inc unit yesterday as part of a probe into Lone Star Funds' takeover of Korea Exchange Bank, an investigator said.
Citigroup Global Markets Korea Securities Ltd, which advised Lone Star when the US buyout company acquired Korea Exchange in 2003, was raided yesterday morning, Chae Dong-wook, a prosecutor at the Supreme Prosecutors' Office, said by telephone in Seoul.
Korean prosecutors are investigating whether Korea Exchange Bank's financial strength was deliberately understated to allow Lone Star, the biggest foreign investor in Asia's third-largest economy, to acquire the lender three years ago. A government audit cleared Lone Star of any wrongdoing in June.
Citigroup is cooperating fully with prosecutors' inquiries, Richard Tesvich, a Hong Kong-based spokesman at the world's biggest financial services company said by telephone.
The raid was also part of a separate probe into an allegation Korea Exchange Bank manipulated the share price of its credit card unit in 2003 before taking over the business, Chae said.
The enquiry into Lone Star's acquisition of Korea Exchange Bank is delaying the takeover of the lender by Kookmin Bank, the country's biggest bank by assets.
Kookmin Bank is negotiating whether to extend an agreement to complete the US$7.3 billion takeover deal with Dallas-based Lone Star. The deal expired on Sept. 16, but remains valid until one or both parties terminate the transaction.
South Korea's financial regulator last month delivered its findings of the stock manipulation allegation to prosecutors without disclosing them to the media. The prosecutors carrying out that probe in April asked the regulator to look into the credit card company purchase.
Korea Exchange, South Korea's fifth-largest lender, last month denied newspaper reports that it tampered with KEB Credit Service Co stock in November 2003 to buy shares more cheaply.