A South Korean court ruled yesterday that US private equity group Lone Star Funds and the head of its South Korean operations were guilty of stock price manipulation.
The Seoul Central District Court found the fund and Paul Yoo, its country head, manipulated the stock price of the credit card unit of Korea Exchange Bank (KEB), in which the fund owns a controlling stake, court spokesman Lee Dong-keun said.
Lone Star and Yoo, who was sentenced to five years in prison by the court, were accused of conspiring to lower the price of KEB's credit card unit in 2003 by spreading false information.
Prosecutors had sought 10 years in prison for Yoo.
Dallas, Texas-based Lone Star has come under intense scrutiny in South Korea over its business activities amid local unease over the role of foreign investors in the economy.
The fund wants to sell its controlling stake in KEB, the country's sixth-largest lender. The effort has been stymied by various legal and tax disputes, including the stock price manipulation case, as well as negative sentiment toward foreign investors that profit after taking stakes in distressed South Korean companies.
South Korean authorities have said the sale cannot be approved until legal issues are resolved.
Lone Star Chairman John Grayken, who was not on trial, visited South Korea last month to testify in the trial, telling the court that both Yoo and Lone Star were innocent of the charges.
The chairman, however, was slapped with a travel ban and questioned for 10 days by prosecutors regarding Lone Star's 2003 acquisition of KEB before being allowed to leave the country.
The fund has also battled suspicions that it was able to purchase the bank at a bargain price after colluding with government officials to understate the bank's financial health.
Lone Star has denied any wrongdoing and has countered that its rehabilitation of the once financially strapped KEB has been good for South Korea's economy.
Last year, HSBC Holdings PLC announced plans to acquire Lone Star's 51 percent stake in KEB for as much as US$6.3 billion pending regulatory and government approval.
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