Korean prosecutors’ move to arrest Lone Star executives fails again

A reapplication by Korean supreme Prosecutor’s Office to detain and arrest three senior executives of Lone Star including co-founder Ellis Short has been turned down by the courts again on 7 November.

Seoul Central District Court has rejected for a second time Korea’s Supreme Prosecutor’s office’s reapplication for warrants to detain and arrest three Lone Star senior executives.

The prosecutors were hoping to detain Paul Yoo, head of Lone Star’s Korean unit, and arrest US-based Ellis Short and Michael Thomson, the firm’s general counsel, to investigate Lone Star for alleged stock manipulation when it bailed out the credit card affiliate of Korea Exchange Bank in 2003.

John Grayken, chairman of Lone Star said: “We are gratified that for the second time in a week the Court did not accept the prosecutors’ accusations, even in the face of very public pressure on the Court applied by the Prosecutors Office.”

“As we have long insisted throughout this investigation, Lone Star and its officers have done nothing illegal in connection with Lone Star’s investment in KEB, or KEB’s subsequent rescue of KEB Credit. We hope that this latest decision will put an end to the prosecutors’ strong arm tactics and finally lead to the conclusion of these seemingly unending investigations.”

Lone Star stands to net more than $4 billion in profit from the agreed sale of its stake in Korea Exchange Bank to Kookmin Bank. The lucrative transaction has been held up by prosecutors’ investigations into the bank’s sale to Lone Star in 2003.

Many people and firms involved in that transaction have been questioned or had their offices raided. The Seoul office of Citigroup, which advised Lone Star in the 2003 deal, was raided by prosecutors on 17 October. On 6 November, Lee Kang Won, former chief executive of Korea Exchange Bank, was arrested on suspicions of bribery and deliberately mis-stating the bank’s financial health to facilitate its sale to Lone Star.

Korea Exchange Bank has refuted media reports that it manipulated KEB Credit’s stock in November 2003 to drive down the share price prior to absorbing the unit.