US private equity group Lone Star Funds took aim yesterday at South Korean prosecutors, accusing them of "baseless accusations" in their attempt to arrest company officials.
The Dallas, Texas-based fund was reacting to an announcement by prosecutors on Tuesday that they were seeking the arrest of the head of Lone Star's local unit for alleged stock price manipulation, as well as two other current and one former executive.
"We will vigorously defend our company and our officers from these baseless accusations," Lone Star Chairman John Grayken said in a statement released in the US.
Prosecutors said on Tuesday that they were seeking to detain four people including Paul Yoo, head of Lone Star's South Korean unit Lone Star Advisors Korea, as well as Steven Lee, its former head who is no longer with the fund.
The Supreme Prosecutors Office didn't identify the other executives, but the Lone Star statement said they were Lone Star Funds Vice Chairman Ellis Short and Michael Thompson, its general counsel.
Of them, only Yoo is in South Korea.
"I have to conclude that this is further evidence of a politically motivated investigation driven by anti-foreign investor sentiment that persists in certain segments of Korean society," Grayken said.
Lone Star has been probed by prosecutors since March over allegations the fund acted with the former management of Korea Exchange Bank and government officials to misrepresent the bank's financial health to cut Lone Star's purchase price for the lender.
In addition, prosecutors have also launched an investigation into allegations that KEB and Lone Star were involved in manipulating the stock price of KEB's credit card unit in 2003 ahead of the bank's merger with it.
Lone Star has consistently denied any wrongdoing.
The fund's 2003 acquisition of Korea Exchange Bank has fueled negative views among South Koreans of foreign investment funds.
Some lawmakers and media have accused them of being so-called "vulture capital" out to make a quick profit by purchasing troubled companies and banks at a discount and then selling the investments for large profits.
In May, Lone Star signed an agreement to sell all of its 70.9 percent stake in KEB to Kookmin Bank, South Korea's top lender, but the investigations have prevented the deal, valued at more than US$7 billion, from being closed.
When Kookmin Bank signed the deal, which had a Sept. 16 expiration date, it stipulated that it would only go through with the transaction when the prosecutors' probe proved no criminality on the part of Lone Star.
Although the pact has technically expired, it remains valid until either Kookmin Bank or Lone Star declares it terminated.