SEOUL -
South Korean prosecutors have again requested
warrants to arrest three executives of US private
equity fund Lone Star, including its vice
chairman, on charges of stock-price manipulation,
shortly after a Seoul court rejected the demand
to arrest them, prosecution officials said on
Friday.
The request was made hours after
the Seoul Central District Court refused to allow
the prosecution to arrest the three executives of
Lone Star, including firm vice chairman Ellis
Short, saying
additional evidence was
needed.
The other two are general counsel
Michael Thompson and Yoo Hoe-won, the head of Lone
Star Advisors Korea, the local unit of the
Texas-based company.
The court, however,
reissued an arrest warrant for Steven Lee, the
former head of the Seoul office, who now has no
ties with the company.
They are suspected
of involvement in the manipulation of stock prices
of the Korea Exchange Bank's credit-card arm in
late 2003 ahead of the takeover of the bank by the
private equity fund. Lone Star is the largest
shareholder of the country's fifth-largest lender.
"We sought warrants for the three people
without supplementing the previously submitted
request," Park Young-soo, the chief prosecutor in
charge of the case, told reporters. The
prosecution will appeal the court decision, he
said.
Short and Thompson were asked to
meet with the Seoul prosecutors next Wednesday,
the official added.
Lone Star Funds
welcomed the court's rejection of the request.
"We are gratified that the court did not
accept the prosecutors' accusations, which we have
insisted all along were without merit," said fund
chairman John Grayken in an e-mailed statement.
Prosecutors have shown uneasiness at the
rejection, as it was feared it would make it
difficult for them to investigate the US fund's
alleged wrongdoing in acquiring the Korea Exchange
Bank (KEB).
Prosecutor General Choung
Sang-myoung quickly convened an emergency meeting
to discuss possible countermeasures to the
rejection, according to prosecution officials.
"The court appears to have agreed that the
crime [by Lone Star officials] is fully proven,"
said Chae Dong-sook, a senior prosecutor at the
Supreme Prosecutors' Office. "But we don't
understand why the court rejected our request for
warrants against those involved in the stock-price
manipulation, a serious crime that incurred
damages of tens of billions of won," he
complained.
KEB and Lone Star have been
under criminal investigation since late last month
over allegations that they spread false rumors of
a capital writedown by the Korean lender's
credit-card unit to buy a controlling stake in the
company at a below-market price.
Ten
people, including Yoo and Lee Dal-yong, former
vice president of KEB, were prohibited from
leaving the country while the investigation is
under way.
Prosecutors are also
investigating whether KEB's financial value was
deliberately understated to facilitate the sale of
the troubled bank to Lone Star at a below-market
price in 2003.
In June, state auditors
said the bank's value was intentionally
underestimated by its former executives, but that
Lone Star did not commit any wrongdoing in its
acquisition of the bank.
In a related
development, investigators on Thursday also sought
an arrest warrant for Lee Kang-won, the former
president of KEB, for taking a leading role in the
alleged underestimation of the value of the bank.
The Texas-based fund bought a controlling
50.5% stake in KEB for 1.4 trillion won (US$1.49
billion) in 2003, and recently signed an agreement
with South Korea's top lender, Kookmin Bank, to
resell the now 64.6% stake in KEB. The deal, which
is expected to give it a profit of more than 4
trillion won, has been delayed as prosecutors
examine allegations of wrongdoing by the US firm.
Lone Star is also under a separate
investigation for allegedly evading a large amount
of taxes and illegally transferring foreign
dollars abroad after it profited from the 2003
bank acquisition.
South Korean public
opinion on the fund's takeover of the country's
fifth-largest bank is largely negative. Many
accuse the fund of trying to make a quick profit
by purchasing a stake in the troubled bank at a
fire-sale price and then selling them for large
profits.
Lone Star has denied any
financial irregularities.
In a statement
issued after the South Korean prosecution sought
warrants for Lone Star officials on Tuesday,
Grayken claimed the move was a new attack on the
US company based on "allegations of vague
conspiracies" and no "hard evidence".
The
prosecutor Chae immediately rejected that claim,
saying, "We are fairly and legitimately
investigating the case."
