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Monday November 20, 5:43 PMS.Korea indicts Lone Star unit, KEB in stock probeSEOUL, Nov 20 (Reuters) - South Korean prosecutors have indicted Korea Exchange Bank (KEB) and a unit of U.S. fund Lone Star [LS.UL] that owns the bank on charges of unfair stock trading, a prosecutors' office spokesman said on Monday.The indictment is the latest legal step prosecutors have taken since they started looking into allegations in February that financial data on KEB had been understated to help Lone Star buy the bank in 2003 at a bargain price of $1.2 billion. The nine-month legal saga has been a key factor in delaying Lone Star's plan to sell KEB to Kookmin Bank for $7.3 billion, and may give South Korea's top lender the upper hand should Lone Star be required to jettison the stake in a hurry. The indictment by the Supreme Prosecutors' Office (SPO) relates to whether KEB, the country's fifth-largest lender, and its top shareholder Lone Star had artificially pushed down the share price of a KEB credit card affiliate it bought out in 2004, damaging the interests of shareholders. Both KEB and Lone Star have denied wrongdoing in the way the bank absorbed KEB Credit Service. But if the Dallas-based fund was found guilty of the suspected unfair stock trading, it would be ordered to dispose of shares that exceed a 10 percent stake in KEB immediately. The order needs a Supreme Court ruling to be applied. "We have indicted them ... because of an alleged violation of stock trading law," SPO spokesman Kang Chan-woo said by telephone. KEB and Kookmin declined to comment on the matter, while Lone Star's Seoul office was unaware of it. Yonhap news agency quoted Chae Dong-wook, a superintendent prosecutor, as telling a briefing that Lone Star and KEB had saved more than 40 billion won ($42.80 million) as the share price fall in the KEB unit cut its buyback price from minority shareholders. Officials at the regulatory Financial Supervisory Commission could not immediately be reached to comment on what impact a court ruling on the charges would have on KEB. ANTI-FOREIGN SENTIMENT The protracted investigation has made investors wary of anti-foreign sentiment in South Korea, which rose after foreign concerns like Newbridge Capital [NB.UL] and the Carlyle Group [CYL.UL] made hefty gains after snapping up local banks at fire sale prices following the 1997-98 Asian financial crisis. Lone Star Chairman John Grayken told Reuters in a telephone interview on Friday that its talks with Kookmin were on hold because of the investigations, and Lone Star would not invest any money in South Korea until the probes were completed. Some critics said prosecutors were shifting their focus to KEB's share trading of the former unit because they have been unable to find evidence of wrongdoing in the 2003 sale to convict those involved. But the prosecutors' office has reportedly argued they had secured evidence of irregularities in the way that KEB was sold to Lone Star, although they needed to question more people. If Lone Star were found to have been involved in the alleged improprieties related to its 2003 KEB purchase, the deal would be declared void. Prosecutors are seeking to extradite Lone Star Vice Chairman, Ellis Short and its general counsel, Michael Thomson for questioning in relation to the stock trading in KEB Credit Service, after a South Korean court issued warrants on Thursday to detain the two executives. The prosecutors' office has yet to charge them in relation to the stock deal. "Our indictment is limited to the two (corporate) entities. A court ruling on them (the companies) may affect a verdict on them (Short and Thomson) later," the SPO's Kang said. Shares in KEB shed 1.59 percent to close at 12,350 won, while Kookmin was down 0.27 percent at 73,400 won. ($1=934.6 Won) |
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