FSC might be ordered to decide on the fund’s shareholder eligibility


The Supreme Court will deliver a verdict on a key issue regarding Lone Star Funds on Thursday, possibly forcing the Financial Services Commission to make public the fund’s eligibility as the biggest shareholder of Korea Exchange Bank.

The FSC, which lost the original trial in 2007 and the second trial in 2009 in a lawsuit filed by Solidarity for Economic Reform, appealed to the highest court two years ago.

Before the suit, the regulator refused to publicize its internal information as to whether Lone Star had been eligible to own KEB under banking laws.

Despite speculation that the U.S.-based buyout fund is a “non-financial” investor barred from owning a local bank, the FSC, which approved Lone Star’s takeover of KEB in 2003, has yet to clarify its final ruling on the issue.

Sources said the possibility that the Supreme Court will reverse the verdict from the original and second trials is low.

In the earlier trials, the FSC reportedly promised that it “would determine whether to make public the fund’s shareholder eligibility within two months (following the final verdict).”

The coming verdict is drawing interest as the regulator failed to take the issue of whether Lone Star has been a financial or non-financial investor into consideration in its action on the fund last Friday.

The FSC only considered an earlier verdict that the fund manipulated stocks of KEB’s credit affiliate and ordered it to sell most of KEB shares to any investor.

If the court rules that Lone Star has been a non-financial investor, the FSC will likely be held accountable for its lenient action, amid growing calls for the regulator to take punitive action on the fund.

Depending on the verdict, Lone Star’s acquisition of KEB in 2003 could be regarded as invalid and the fund’s preliminary deal with Hana Financial Group to trade KEB shares could also be nullified.

On Wednesday, a group of small shareholders of KEB filed an injunction with the Constitutional Court to suspend the validity of the FSC’s Nov. 18 action on the fund.

The injunction also included their petition to ban the regulator from endorsing the M&A deal between Lone Star and Hana Financial before legal uncertainties are lifted.

“The regulator has not taken any measures on speculations that Lone Star owns golf courses in Japan (which hints that the fund is a non-financial investor),” they said.

They alleged that the FSC had already been informed of the fact that Lone Star was a non-financial capital and provided the fund with a certain period to sell off the golf courses.

Lone Star has been suspected of owning 130 golf courses worth about 3.7 trillion won ($3.2 billion) in Japan.

The nation’s banking laws ban an investor with its non-financial assets exceeding 2 trillion won from controlling a Korean bank.

Further, speculation recently emerged that the U.S. fund is moving to sell the golf courses following criticism among ruling and opposition lawmakers as well as the KEB union in Korea.

By Kim Yon-se (kys@heraldcorp.com)