Prosecutors Shelve Indictment of Lone Star Head

Prosecutors on Wednesday shelved an indictment against the chairman of Lone Star Funds as they probed the U.S. equity firm's controversial 2003 takeover of Korea Exchange Bank, a senior prosecutor said.

The Supreme Prosecutors' Office "cannot decide at the moment" whether to indict John Grayken, Song Hai-eun, representing the prosecution team, told reporters.

Wrapping up 10 days of questioning Grayken, prosecutors lifted the exit ban that has been imposed on him since his arrival on Jan. 9, and that was initially to expire on Tuesday next week. Song said Grayken pledged to return to Seoul when the prosecutors summon him for further questioning, but his pledge is not legally binding.

The high-profile probe centers on Lone Star's purchase of the Korea Exchange Bank in October 2003, when the country's sixth-largest lender was struggling in the aftermath of the 1997-1998 Asian financial crisis. The 1.38-trillion-won ($1.4 billion) price Lone Star paid was considered by some to be 20 to 30 percent lower than the bank's real value.

Prosecutors allege that Lone Star's South Korean representatives lobbied government officials and lawmakers so the fund could buy the bank cheaply, and that they did so on the instructions of the U.S. company's headquarters.

Song did not elaborate on whether prosecutors secured evidence to prove Lone Star's lobbying allegations. If Grayken and other U.S. executives of Lone Star ignore summonses in the future, the probe may be permanently left in the dark.

Questioning Grayken yielded "a number of facts that have not been brought up so far," Song said.

Also under investigation is the Korea Exchange Bank's controversial merger with its credit card unit in November that year.

Yoo Hae-won, Lone Star's South Korean representative, is accused of manipulating stocks of the credit card unit by spreading a false rumor that a capital reduction of the card company was imminent.Lone Star bought a 50.5 percent stake in KEB in 2003 and later increased its holdings to 64.6 percent.

Between these deals, the credit card firm merged with the bank, resulting in losses of about 22.6 billion won ($24.4 million) for its smaller shareholders.

Grayken has denied any wrongdoing. Testifying as a witness for Yoo at the Dec. 11 trial, Grayken said the allegations are "completely untrue."

In June last year, Lone Star sold a 13.6 percent stake in KEB, but it still holds 51.02 percent of the bank.

Lone Star has cancelled its attempts to sell the entire stake, as the Financial Supervisory Commission refused to approve any deal until the legal problem is resolved. In its latest move in September, Lone Star signed a $6.3 billion contract with London-based HSBC Holdings to sell the 51.02 stake. The contract is valid until April.

(Yonhap)