Upon reports of Korea Exchange Bank’s release of huge dividends to its shareholders, a wave of criticism has been hurled at the Texas-based Lone Star Funds, which will collect nearly a half trillion won from its 51 percent share in the bank. Xenophobia again raises its head in some civic quarters. Radical voices ask financial regulators to stop the U.S. buyout fund’s “eat-and-run” business.

The Financial Services Commission, which has been delaying an approval for Lone Star’s sale of KEB to Hana Financial Group, expressed concerns about the dividend scheme of some 45 percent ― nearly three times higher than the average at other banking institutions. KEB’s unionists accused the U.S. fund operators of “blindly raking in money and turning the bank into an empty shell.”

KEB’s board decided last week to pay out a quarterly dividend of 973 billion won. Since it took over 64.6 percent of KEB shares in 2003, Lone Star has earned 1,700 billion won in dividends and made another 1,192 billion won by selling a 13.6 percent stake in 2007. Financial information providers estimate that Lone Star’s earnings from KEB (before tax) have reached 134 percent of its $1.3 billion investment.

The dividends question in KEB is the latest in a series of controversies that Lone Star and the fifth largest bank in Korea have stirred here since the U.S. hedge fund put its shares on sale in 2006. Kookmin Bank offered to buy them for $7 billion but the deal collapsed as Korean authorities probed suspected improprieties over Lone Star’s 2003 acquisition. An agreement with the British HSBC Holdings for a takeover at $6.3 billion also fizzled while court proceedings dragged on and the global financial crisis set in.

Lone Star pressed ahead with the KEB sale last year as the appeals court cleared two former officials of wrongdoing in the 2003 KEB deal. Last November, Hana Financial Group agreed with Lone Star on a $4.3 billion takeover to create a financial giant strong both in retail banking and foreign exchange. Yet, the final contract was not signed until the May 24, 2011 deadline as regulators withheld approval because of the question of whether the hedge fund was eligible to own the bank in the first place. The Supreme Court in March overturned the lower court’s acquitting Lone Star of market manipulation charges.

Under these circumstances, Lone Star’s managers must feel hard pressed to make money to pay its private investors ― with dividends, if not with the profit from the sale of the bank. Outside the takeover deal, Lone Star recently borrowed 1.5 trillion won from Hana Bank with its KEB shares as collateral.

When we look back on the Korean situation following the 1997-98 Asian financial crisis, the government and the industries were eager to get foreign investment to invigorate the manufacturing, financial and real estate markets. Lone Star, Carlyle, New Bridge Capital and other hedge funds made high risk-high return investments here. Some have left with profits, others with losses. Reports of substantial earnings in any transactions they made in Korea have caused debate on the outflow of national wealth.

The Dallas, Texas-based Lone Star Funds drew attention when its deal with Kookmin Bank in 2006 carried such a huge profit figure. After five years, the price has fallen considerably and now the dividend question has arisen. Lone Star is no missionary organization ― it goes all out in pursuit of money to pay its investors.

What is problematic is that the dividends decision was made when business figures with Korea Exchange Bank showed a marked decline in terms of market share, net profits and debt to capital ratio. But our super-cautious regulators would not interfere unless the dividend scheme violates the law. They would not give their approval for the KEB sale either until the final court decision is made.

The massive dividends mean abandoning the bank’s future growth. Nobody wants an irrevocable insolvency of the bank and everyone wants to get the Lone Star controversy over with as soon as possible. Prolongation of court ruling on the Lone Star case will not enhance the nation’s creditability in the global community, where some cynics call the situation a Korean soap opera. The court, financial regulators and KEB employees need to act with good judgment and strong conviction.