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February 1, 2008

Lone Star Executive Faces 5 Year Jail Term

by Stewart Douglas

Story link: Lone Star Executive Faces 5 Year Jail Term

A court in Korea has today found US private equity firm Lone Star guilty of manipulating stock prices, in a move that has seen repercussions for both the company as a whole and its Korean based executive Paul Yoo, in an unprecedented conviction for a crime of this nature.

The Korean court imposed a fine of some $27 million on the Texas-based investment firm, and dealt Paul Yoo a custodial sentence of five years in prison for his role in the alleged share price manipulation exercise, which concerned a transaction with Korea Exchange Bank back in 2003.

The allegations suggest that Mr Yoo assisted in the acquisition of KEB by initiating false rumours about failings within the company which had the effect of depressing share prices in order to allow his company to acquire the stake in KEB at a reduced price.

Lone Star has maintained that neither it nor its executive have commited any offence in relation to the deal, and that everthing as far as their 51% stake acquisition was concerned was above board. Nevertheless the convictions will be seen as a major blow for both the company and Mr Yoo.

The KEB stake, which was purchased for $1.5 billion was scheduled to be sold to HSBC in a deal worth $6.3 billion, however the move has been seriously hampered by the legal difficulties and the problems faced by the company in recent weeks.

The circumstances of the case have further underlined what some analysts describe as a negative feeling towards private equity firms based outwith Korea taking advantage of opportunities within the Korean marketplace, particularly in relation to smaller or failing businesses.

 

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