Financial Services Commission chief Kim Seok-dong pushed ahead with the decision to impose a “mild sanction” on Lone Star Funds despite some working-level officials’ resistance, financial sources said.

The sources said Kim finalized the heated issue on how to sanction the U.S. buyout fund, convicted of stock manipulation, despite reluctance among a group of investigators in the FSC.

“I have found that the staff were unwilling to (issue a light sanction),” a former high-ranking official of the FSC told The Korea Herald.

“I’ve heard that they had refused to finalize (the instruction from Kim to report the final results on the staff’s legal review as soon as possible).”

The staff, under pressure to make a final report, reportedly notified their chief of the likely outcomes of both the light or punitive actions.

An official of the Financial Supervisory Service, an executive arm of the FSC, alleged that the report on the outcomes of both was meaningless.

“I think Chairman Kim and several senior officials had already reached a consensus to select the light sanction,” he said.

Despite calls to order Lone Star to dispose of its stake in Korea Exchange Bank on the stock market to stop it from enjoying huge management premiums, the FSC allowed the fund to sell the shares to any investor in its decision on Nov. 18.

The decision, which carries no punitive measures, paved the way for the stock manipulator to select a preferred bidder and rake in huge management premiums as the fund is allowed to dispose of the KEB shares through an M&A deal, not through a coercive sale to anonymous investors on the bourse.

Hana Financial Group has been trying to take over KEB since November in 2010.

“It seems that the staffers did not want to take heavy responsibility amid mounting requests from ruling and opposition lawmakers to take stern action against Lone Star,” said a source in the financial market.

Concerning regulators’ move to dismiss three KEB executives, who are close to Lone Star, the former high-ranking FSC official said the FSC “is struggling to placate the angry sentiment, including that of the ruling Grand National Party.”

The FSC apparently also ignored the calls to reveal Lone Star’s bank shareholder eligibility before taking action.

FSC spokespersons denied that its staff had been reluctant to follow Kim’s directive.

By Kim Yon-se, Cynthia J. Kim

(kys@heraldcorp.com)
(cynthiak@heraldcorp.com)