Report: Court clears legal hurdles for Lone Star

A South Korean court cleared bank and government officials of price manipulation in the $1.2bn sale of Korea Exchange Bank in 2003 to the US private equity firm. Lone Star has lost two agreements to sell its stake at an enormous profit as the result of ongoing lawsuits.

A South Korean district court has ruled that there was no price manipulation in the 2003 sale of Korea Exchange Bank to US private equity firm Lone Star, according to an Asian news agency. The ruling could clear the way for Lone Star to sell its 51 percent stake in KEB.

The court cleared several bank officials and one government officials of exaggerating the bank’s financial troubles in order to buy the bank at a lower price. The decision may be appealed.

Lone Star purchased its stake in KEB for $1.2 billion.

“In the process of the KEB sale, it is undeniable that there was inappropriate activity with the defendants, but considering the whole picture, it is difficult to see that the defendants had engaged in or intended an activity amounting to breach of trust,” Judge Lee Kyoo-jin of the Seoul Central District Court said,  according to the news agency.

In a separate case, the Seoul High Court last June cleared Lone Star on an allegation of stock price manipulation of KEB’s former credit card unit. The decision was a reversal of a lower court’s decision and prosecutors have lodged an appeal with the country’s Supreme Court.

In August 2007, Lone Star agreed a sale to HSBC Bank for $6.3 billion, which consistently ran into regulatory hurdles due to the pending lawsuits. Korea’s Financial Services Commission would not approve the deal until it was cleared of the allegations it faced.

HSBC walked away from the deal this past September citing current asset values in world financial markets as well as the two parties' inability to agree on terms.

In January of 2007, Lone Star was forced to terminate a $7.3 billion agreement forged in 2006 to sell its stake to Kookmin Bank as a result of the ongoing investigations into its investment in KEB.