Lone Star's KEB purchase 'illegal'

7 December 2006

Private equity firm Lone Star's purchase of Korea Exchange Bank (KEB) in 2003 was illegal, South Korean prosecutors have concluded.

Korea's Supreme Prosecutor's Office alleges that former finance ministry official Byeon Yang Ho conspired with KEB's ex-president Lee Kang Ho to drive down the sale price of KEB, which was eventually sold for $1.5 billion.

The two men are accused of understating KEB's assets and inflating its losses, reducing the price by as much as $900 million below its true value.

In an official statement, the prosecutor's office said: "We confirmed that the sale of Korea Exchange Bank was conducted abnormally without following regulations and due procedure, and the sale price did not reach the adequate level."

The extradition of Lone Star executives is also now being sought, with the firm's chairman John Grayken rejecting the allegations of a conspiracy.

"It is the same old broad conspiracy theory that never made any sense and still is not supported by any hard evidence,'' he said.

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