Legal documents show buyout fund exonerates Korean government
By Jung Min-ho
Did Lone Star shoot itself in the foot?
According to an opposition lawmaker, it did and that will likely affect the prospect of legal action the Dallas-based buyout fund has taken against the Korean government for the payment of 5.13 trillion won ($4.7 bil.). Lone Star allegedly lost this much when it failed to get approval for the sale of the Korea Exchange Bank to HSBC in time.
According to Rep. Kim Gi-juhn of the New Politics Alliance for Democracy, it was not the government that Lone Star initially claimed responsible for the loss; it was Steven Lee, the former head of Lone Star's Korean office.
In a petition filed with Dallas County District Court in 2009, Lone Star claimed that Lee was the person solely responsible for the loss.
"As a result of Defendant's (Lee) wrongful conduct, the deal with HSBC was lost," the petition says. "Accordingly, and as described above, Defendant's fraudulent acts directly and proximately caused Plaintiffs to lose the sale of the 51 percent interest in KEB for a price of approximately $5.9 billion."
In the document, Lone Star also said it even worked with the government when Korean prosecutors tried to determine Lee's misconduct from 2005 to 2006.
Lone Star is using Investor-State Dispute Settlement (ISDS) against the government at the International Center for Settlement of Investment Disputes in Washington D.C.
"In cooperation with the South Korean government's ongoing investigations, Lone Star informed South Korean authorities of Defendant's malfeasance," the petition says.
"But for the delay in receiving governmental approval, which was caused by Defendant's fraudulent conduct, the HSBC sale would have closed no later than April 30, 2008, before the global financial crisis."
By changing its statement, experts say, Lone Star may be violating the doctrine of estoppel, a legal principle that prevents a person from adopting a position, action, or attitude, asserting a fact or a right, or prevents one from denying a fact inconsistent with an earlier position.
Song Ki-ho, a lawyer specializing in trade and commerce law, said the document could be critical evidence against Lone Star in the ISDS because it shows the company's inconsistency in its claims.
"The petition weakens the argument Lone Start is trying to make," he said.
It is unclear whether the government is using the document as evidence in the ISDS. A government representative refused to reveal any information about it.
The case is the latest -- and the biggest -- legal dispute the government ever had with a foreign company.
Lone Star claims the government must compensate it because the firm ended up selling off the KEB stake for a margin much smaller than what it could have gained from an earlier deal that ultimately fell apart because of the delay in approving the contract.
In 2007, the company had agreed to sell its 51-percent stake in KEB to HSBC for about 5.94 trillion won, but HSBC scrapped the contract a year later amid the global financial crisis.
Lone Star eventually sold the stake to Hana Financial Group for 3.9 trillion won in 2012.
By Jung Min-ho
Did Lone Star shoot itself in the foot?
According to an opposition lawmaker, it did and that will likely affect the prospect of legal action the Dallas-based buyout fund has taken against the Korean government for the payment of 5.13 trillion won ($4.7 bil.). Lone Star allegedly lost this much when it failed to get approval for the sale of the Korea Exchange Bank to HSBC in time.
According to Rep. Kim Gi-juhn of the New Politics Alliance for Democracy, it was not the government that Lone Star initially claimed responsible for the loss; it was Steven Lee, the former head of Lone Star's Korean office.
In a petition filed with Dallas County District Court in 2009, Lone Star claimed that Lee was the person solely responsible for the loss.
"As a result of Defendant's (Lee) wrongful conduct, the deal with HSBC was lost," the petition says. "Accordingly, and as described above, Defendant's fraudulent acts directly and proximately caused Plaintiffs to lose the sale of the 51 percent interest in KEB for a price of approximately $5.9 billion."
In the document, Lone Star also said it even worked with the government when Korean prosecutors tried to determine Lee's misconduct from 2005 to 2006.
Lone Star is using Investor-State Dispute Settlement (ISDS) against the government at the International Center for Settlement of Investment Disputes in Washington D.C.
"In cooperation with the South Korean government's ongoing investigations, Lone Star informed South Korean authorities of Defendant's malfeasance," the petition says.
"But for the delay in receiving governmental approval, which was caused by Defendant's fraudulent conduct, the HSBC sale would have closed no later than April 30, 2008, before the global financial crisis."
By changing its statement, experts say, Lone Star may be violating the doctrine of estoppel, a legal principle that prevents a person from adopting a position, action, or attitude, asserting a fact or a right, or prevents one from denying a fact inconsistent with an earlier position.
Song Ki-ho, a lawyer specializing in trade and commerce law, said the document could be critical evidence against Lone Star in the ISDS because it shows the company's inconsistency in its claims.
"The petition weakens the argument Lone Start is trying to make," he said.
It is unclear whether the government is using the document as evidence in the ISDS. A government representative refused to reveal any information about it.
The case is the latest -- and the biggest -- legal dispute the government ever had with a foreign company.
Lone Star claims the government must compensate it because the firm ended up selling off the KEB stake for a margin much smaller than what it could have gained from an earlier deal that ultimately fell apart because of the delay in approving the contract.
In 2007, the company had agreed to sell its 51-percent stake in KEB to HSBC for about 5.94 trillion won, but HSBC scrapped the contract a year later amid the global financial crisis.
Lone Star eventually sold the stake to Hana Financial Group for 3.9 trillion won in 2012.
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