Warburg Pincus Korean chief gets four-year jail sentence

A Korean court has slapped Warburg Pincus with a fine in addition to sentencing Hwang Sung-jin, the US private equity firm’s local chief to four years in prison for insider trading.

Hwang Sung-jin, the Korean head of Warburg Pincus was been sentenced on 9 February by a Korean court to a four year prison term for violating insider trading laws. The court did not immediately jail Hwang and another in order to give them time to prepare for their appeals, according to Korean news agency Yonhap. It is unclear if they plan to appeal.

The charges stemmed from an allegation that in 2004 the US private equity firm improperly disposed of its shares in LG Card prior to a crash in the company’s share price.

“The accused Hwang led the sale of 2.9 million shares and (an) additional 2.9 million shares on the market as a way to secretly recoup investments in LG Card … and avoided 13.2 billion won ($14.13 million) of losses, respectively,” the court said in a ruling faxed to Reuters.

A spokesperson for Warburg Pincus declined to comment. Warburg Pincus’ public relations agency, Edelman, said in a statement sent to Reuters: “We’re disappointed with the trial court’s verdict but continue to believe that the firm committed no wrongdoing,”

The ruling by Seoul Central District Court was the first prison term handed down to an official of a foreign investment fund as Korea tightens its supervision of illegal stock trading. Local prosecutors have been investigating Warburg Pincus and other shareholders of LG Card since 2004 for disposing their shares in the card company in 2003.

The Korean court also fined two Warburg affiliates 26.5 billion won each ($28 million) for their involvement, according to Yonhap.

Hwang was sentenced alongside Lee Dong-reoul, a managing director of LG Chemical, who was given a three-year term. Lee was responsible for managing stocks in the conglomerate owned by the LG owner family, while Hwang had been an outside director of the credit card company.

Judge Kim Deuk-hwan was quoted on Yonhap as saying: “Selling off stocks using undisclosed information undermines the transparency of the stock market and thus causes unpredicted losses to general shareholders and investors. The behavior poses a great danger to the market economy.”

The stock price of LG Card plummeted 50 percent after rumours of a liquidity crisis surfaced. Warburg invested a combined $370 million in LG Card in 2000 via two investment arms based in Malaysia.

The Korean court verdict follows a January indictment of Paul Yoo, the former local head of Lone Star Funds, on charges related to tax evasion and stock trading violations. In 2003, Lone Star purchased a controlling stake in a distressed Korea Exchange Bank. The Dallas-based private equity firm canceled last year an agreed sale of its stake to Kookmin Bank because of ongoing prosecutors’ investigations. Following Yoo’s reported admission of stealing funds from his firm, Lone Star says it is the victim of a crime and committed no wrongdoing in the Korea Exchange or any other transaction.