By Kang Seung-woo
The Seoul High Court Thursday found Paul Yoo, a former executive of Lone Star, guilty of engaging in stock manipulation in the Texas-based buyout firm’s 2004 acquisition of Korea Exchange Bank (KEB)’s credit card unit.
The court sentenced Yoo to a three-year jail term and also fined Lone Star 25 billion won (about $21.2 million).
However, the court overturned an earlier conviction on KEB over its alleged involvement in the stock-price rigging and declared it not guilty
Ironically, the ruling may clear the last hurdle in Lone Star’s six-year quest to sell its 51 percent stake in KEB. The Financial Services Commission (FSC), the regulator, said that it may have to tell Lone Star to sell most of its KEB stake following Yoo’s conviction.
Lone Star inked a $4 billion-plus agreement to sell its shares in KEB to Hana late last year. But the FSC had delayed reviewing the deal, opting to wait for the results of Yoo’s retrial after the Supreme Court overturned a 2008 not-guilty verdict in March.
With the sale left in limbo, Lone Star and Hana were forced to extend their deadline for the deal from May to Nov. 30.
The high court’s ruling on Yoo backed a long-held assertion by prosecutors that Lone Star executives colluded with KEB’s former management and government officials to understate the bank’s financial health and allow the buyout fund to purchase it at a lower-than-expected price in 2003.
Lone Star acquired a controlling stake in KEB for $1.2 billion in 2003 and later merged the bank with its then-listed credit card unit. Prosecutors had claimed Yoo intentionally spread rumors in 2003 that the credit card unit might reduce its capital and then issue new shares, which resulted in a slide in stock prices and paved the way for a cheaper merger with KEB.
Financial industry insiders believe that the conclusion of the litigation on Lone Star removes the legal uncertainty for Hana’s takeover of KEB.
The court ruling provides the FSC grounds to declare Lone Star as ineligible to be KEB’s major shareholder, which will require the buyout firm to sell all but 9 percent of its shares in the bank within six months. Financial regulators will likely bless Hana to be on the receiving end of Lone Star’s share release.
There is the possibility that Lone Star could appeal the decisions and force another showdown in the Supreme Court, although some observers see this as doubtful when the current ruling could be the buyout firm’s back-handed ticket out of Korea.