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This page is graphically intense with long load times due to photos. However, the photos and narratives by the men who served at Osan Air Base makes the wait well worthwhile. The opinions expressed are those of the author and in no way represents any official statement of Osan AB or the USAF. 
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LONE STAR AFFAIRLone Star Affair: Four Banks Consider Courting KEB (Jan 2007) (SEE BUSINESS 2006: LONE STAR AFFAIR for details of the Xenophobic business environment created by the Roh administration.) At least four foreign banks have contacted Lone Star Funds, the majority shareholder of Korea Exchange Bank (KEB), to take over the bank since the buyout fund canceled its contract with Kookmin Bank in November 2006, a source said. Among the potential buyers are the Industrial and Commercial Bank of China (ICBC), China’s largest lender; the Bank of America (BOA), the largest lender in the U.S.; and Singapore’s DBS Bank.Supposedly Chinese banks have offered higher bid prices than Kookmin offered with their bid prices reaching possibly $7 billion. The stock price of KEB on 11 Jan rose to 650 won, or 5.35 percent, to 12,800 won on the news that foreign lenders were seeking to acquire the bank. KEB and Lone Star refused to comment on the news. Lone Star, which holds a 64-percent stake in KEB, has hinted at recovering its investment after prosecutors blocked the sale. Prosecutors called the fund’s acquisition of the bank in late 2003 illegal. Analysts say it will take one or two years before the court delivers a final verdict on the case. ``There has been speculation that the fund is taking steps to find a new buyer for KEB, but it will be a time-consuming process,’’ an analyst in Seoul said. ``Lone Star may deal with foreign banks for the KEB sale, but their bids may be blocked again by prosecutors.’’ Even if a bid goes through, it will also be very hard for a foreign buyer to win approval from regulators, who are concerned about growing foreign stakes in banks, the analyst said. There are some local players, including Hana Bank, who are interested in taking over KEB, but given the worsening public sentiment toward Lone Star and the legal battle, it is unlikely that they will make a move. Kookmin Bank President Kang Chung-won earlier said the bank is eager to bid for KEB again. The KEB is still a very attractive acquisition item for many banks, said Kim Jung-ho, an executive at Woori Private Equity. ``Banking is a profitable business, in which a stable margin is guaranteed by the government. The KEB also has stakes in Hynix and Hyundai Engineering & Construction, which will be put up for sale,’’ Kim said. He said KEB is expected to make fat profits for a couple of years to come. The fifth-largest South Korean lender has created teams to attract more foreign investment and to support growing overseas real estate investments by South Koreans. It now has 325 retail outlets in Korea and 26 overseas, and plans to set up some 20 new outlets this year. While other Korean lenders aggressively expanded business last year, the KEB, mired in prosecutors’ investigations, kept a low profile. Its loans increased 9 percent, less than Woori Bank’s 32 percent, Hana Bank’s 28 percent and Kookmin Bank’s 10 percent. (Source: Korea Times .) Lone Star Executive Indicted for Stock Manipulation (Jan 2007) Yonhap News reported that South Korea's state prosecutors office said it had indicted the head of U.S. equity fund Lone Star's local branch on charges of stock manipulation and tax evasion on 25 Jan. The prosecution charged Yoo Hoe-won with conspiring with other executives in late 2003 to spread unfounded rumors about a reduction of capital by Korea Exchange Bank's (KEB) credit card arm that caused prices to fall sharply. The card company was later merged with KEB, which Lone Star owned, resulting in 22.6 billion won in losses for small shareholders. State Auditors Conclude Damning Report on KEB Sale (Mar 2007) The Board of Audit and Inspection on 12 Feb released a damning report on the 2003 sale of Korea Exchange Bank to the offshore investment firm Lone Star, describing it as “a flawed decision made improperly.” It said in principle there were enough grounds to annul the sale. But since the BAI's decision is NOT legally binding, the Financial Supervisory Commission will have the final say whether to strip Lone Star of its status as majority stakeholder. A criminal case against former KEB President Lee Kang-won and former director-general of the Finance Ministry's Financial Policy Bureau Byeon Yang-ho is still pending in court, auditors said, and the FSC needs to take everything into consideration before making a decision. : The state audit body also told the CEO of the Export-Import Bank of Korea to sue for damages against officials of Morgan Stanley who underestimated the value of KEB when the U.S. bank was an advisor on the bank's sale. Export-Import Bank of Korea sold its stake to Lone Star in the 2003 deal. In an interim report last year, the BAI said some officials at the Finance and Economy Ministry and the financial supervisory body exaggerated KEB’s troubles by underestimating the bank's BIS capital adequacy ratio, thus allowing the sale to Lone Star, which would not otherwise have qualified to take over a Korean bank. But controversy will likely continue over the audit report, which says the decision on the W1.4 trillion sale ($1=W1,176 at the time) was made by the KEB president and a mid-level bureaucrat at the Finance Ministry. Already there are complaints that the BAI failed to find concrete evidence whether there was any illegal lobbying on the part of Lone Star. State auditors said the questions will be answered during the court proceedings. (Source: Chosun Ilbo.) Lone Star Rejects Findings in KEB Probe (Mar 2007) The offshore investment firm Lone Star on Wednesday rebuffed a damning report on its takeover of Korea Exchange Bank by the Board of Audit and Inspection, calling it “impossible to accept.” The BAI this week published its findings saying Lone Star’s 2003 takeover of KEB at a knockdown price was “flawed” and “illegal” due to massive manipulations by the bank and finance officials. In a press release Wednesday, Lone Star chairman John Grayken rejected the results of the BAI probe that Korean government officials and a former KEB president conspired to make the bank's financial troubles look worse than they really were to finagle the sale to a bidder who would not otherwise have qualified. Grayken said the bank’s BIS ratio, which represents its financial soundness, “was not too low, it was actually too high. We know this because the loan loss provisions that were actually required” would have lowered the ratio below the level projected before the purchase. According to him, the purchase was thus an expensive deal, considering that the firm set aside an extra W1.4 trillion (US$1=946) in allowance for bad debts after the takeover. “Ironically even if (we accept) the BAI's allegation that the BIS ratio was lowered as a result of a conspiracy and that approval of the sale of KEB to Lone Star was therefore inappropriate, the Financial Supervisory Commission's remedy would be to order Lone Star to sell its stake in KEB to below 10 percent, and this is exactly what Lone Star has stated it intends to do and has been prevented from doing because of the ongoing controversy.” (Source: Chosun Ilbo.) Trial opens in Lone Star stock manipulation case (Mar 2007) On 26 Mar prosecutors denounced a U.S. private equity fund for manipulating stock prices in the controversial takeover of Korea Exchange Bank in 2003, while the fund’s attorney accused the prosecution of conducting what it called a targeted probe of foreign capital. “It is a carefully premeditated crime of stock manipulation involving American executives of Lone Star and Yoo Hoe-won, who is well versed with situations in South Korea,” prosecutor Lee Dong-yeol said in his opening statement at the trial. Defense attorney Chang Yong-kook asserted that Mr. Yoo, the head of Lone Star’s Seoul office, was victimized by the Dallas-based investor. Mr. Yoo is charged with manipulating the stock price of KEB’s credit card unit in November 2003 so that the company would cost less to purchase. Lone Star’s vice chairman, Ellis Short, and general counsel, Michael Thomson, are accused of colluding in the scheme. The credit card firm was later merged with the bank, resulting in about 22.6 billion won ($24.4 million) in losses to its smaller shareholders, prosecutors said. Lone Star has also been under investigation since March last year over allegations that KEB’s value was deliberately underestimated to help the fund purchase a majority stake in the troubled bank at a bargain price. Investigators are seeking to take custody of the two U.S. nationals along with Steven Lee, former head of the company’s Seoul office, over their role in the takeover process and the stock manipulation charges under an extradition treaty with Washington. Mr. Yoo was also accused of perjury to avoid a parliamentary inquiry into the takeover case in October 2004 and breach of trust charges through the manipulation of earning rates of funds and sales of dishonored bonds at below-market prices. He has denied the charges against him. The next court date was set for April 23. (Source: Joongang Ilbo.) Parliamentary committee adopts resolution on canceling Lone Star's KEB purchase (Mar 2007) A parliamentary committee on 30 Mar adopted a resolution calling for the cancellation of a U.S. private equity fund's purchase of Korea Exchange Bank (KEB) in 2003 and the punishment of officials involved in the deal. The National Assembly Legislation and Judiciary Committee took the step after the country's audit agency and prosecution found Lone Star's acquisition of KEB "improper" and concluded the bank's financial soundness had been misstated to clear the way for the takeover. The U.S. firm has rejected the findings. The committee said in the resolution, "(The government) unfairly approved the purchase even though Lone Star had violated pertinent bank laws and was not qualified for the takeover." The resolution said 11 officials were punishable, including then Vice Finance Minister Kim Seok-dong and Yang Cheon-sik, chief of Korea EXIM Bank at the time of the 2003 deal. Lone Star Funds bought a 50.5 percent stake in KEB for 1.4 trillion won (US$1.48 billion). (Source: Hankyoreh News.) Groups allege Lone Star is in violation of banking law due to its holdings (Mar 2007) Major South Korean civic organizations said that Lone Star is holding shares of Korea Exchange Bank (KEB) in violation of banking law. According to the law, a non-financial fund cannot have shareholder voting rights if it owns 4 percent or more of a bank's stake. Lone Star, a U.S. private equity fund, was originally not eligible to be a majority shareholder of any bank in South Korea, according to a domestic law stipulating a ban of non-financial institutions from acquiring a South Korean bank. But based on an exception clause applied under emergency circumstances, namely, financial troubles at KEB, Lone Star became KEB's largest shareholder in October 2003. It currently holds 64.62 percent of KEB's shares, and retains shareholder voting rights equivalent to that percentage. However, according to rules set forth by another article of the same banking law, Lone Star could be judged as a non-financial fund, and thus not eligible for shareholder voting rights due to its large share of KEB. Under the law's article, investors are deemed to be a non-financial fund if they invest more than 25 percent of their assets or more than 2 trillion won (US$2.13 billion) into non-financial sectors. This regulation is aimed at keeping Korea 's financial sectors independent from direct control from large conglomerates, which in Korea are largely involved in the manufacturing or service sectors rather than the financial sector. The Solidarity for Economic Reform and the People's Solidarity for Participatory Democracy commented on Lone Star's holdings of KEB while taking part in a general meeting of KEB shareholders on March 29. PSPD director Kim Sang-jo said, "It is easily predicted that Lone Star's assets in non-financial companies total more than 2 trillion won. If so, regardless of whether or not the Financial Supervisory Commission (FSC)'s approval for Lone Star's takeover of KEB violated the law, Lone Star's more-than-64-percent stake in KEB is against the law. Therefore, Lone Star's shareholder voting rights should automatically restricted within 4 percent and the U.S. fund should sell its excess shares immediately," added Kim. As the controversy surrounding Lone Star's purchase of KEB has focused on other alleged illegal transactions, the fund's ownership in shares of the bank has been overlooked. In response, KEB Chairman Robert Fallon said that Lone Star was approved to invest in KEB by South Korean authorities. Therefore, Lone Star is guaranteed shareholder voting rights, he added. An FSC official said, "Just as in foreign large shareholders of other domestic banks, the FSC has already confirmed Lone Star's eligibility as KEB's majority shareholder and continues to confirm it upon every financial quarter." But in order to confirm the overseas investments of Lone Star, the watchdog authority receives data from the company itself, as opposed to other foreign majority shareholders of financial companies in South Korea , such as CitiBank and SC First Bank, which have their overseas investments confirmed by watchdog authorities based in their respective countries. (Source: Hankyoreh News.) Lone Star wins appeal vs. Seoul : Court says $27 million in tax, penalties should be scuttled (Apr 2007) On 6 Apr, Lone Star Funds won an appeal against the city of Seoul’s decision to charge it 25.2 billion won ($27 million) in taxes and penalties. The Seoul Metropolitan Government should scrap the imposition of the taxes, the Seoul Administration Court ruled on April 6, according to a statement on the court Web site. The Seoul government can make a counter appeal to a higher court within 14 days. Choi Chang-jay, head of the government’s Tax Collection Division, said on 10 Apr, the government will decide its position later. The Seoul government issued an invoice in June last year to Lone Star for 25.2 billion won for property registration and 194 million won in equity-related taxes involved in the purchase of a 45-story building in 2001. Lone Star made appeals in August. Under Seoul’s tax laws, companies incorporated for more than five years pay lower registration taxes on properties they acquire in the city, Lone Star said. The office complex was purchased by Lone Star’s Star Tower Corp. subsidiary, which had been incorporated for more than five years when the transaction was made, Lone Star said earlier. Lone Star said the acquisition complied with local tax laws and it paid all necessary taxes related to the purchase of the Star Tower office building. Seoul city officials audited the transaction in 2003 and decided additional taxes weren’t due. The Seoul government can ask for additional taxes on the registration of a building within five years of the transaction if it finds irregularities, Shin Si-sup, then-head of the government’s Tax Collection Division, said in June. The city contends Star Tower was inactive before the transaction and should pay the higher taxes typically imposed on a newer company, Lone Star said. (Source: Joongang Ilbo.) Lone Star Funds Trial for Stock Manipulation (Apr 2007) Lone Star Funds representatives returned to a Seoul courtroom on 23 Apr, charged with stock manipulation by prosecutors that have frustrated the $13 billion U.S. buyout firm's attempt to reap a fivefold return on its investment in Korea Exchange Bank. Prosecutors allege Lone Star, Korea Exchange and Paul Yoo, who heads the Dallas-based firm's Korean business, drove down the price of a credit card unit in 2003 before the bank absorbed it, according to filings at the Seoul Central District Court. The defendants denied the charges at an initial hearing last month. Lone Star founder John Grayken scrapped a $6.8 billion sale of Korea Exchange in November 2006 after probes he said were driven by an "anti-foreigner" political climate. The firm's two-year struggle to sell the bank has soured global interest in Asia's third-biggest economy, where acquisitions by overseas buyers fell by half to $3.6 billion in 2006, data compiled by Bloomberg show. (Source: Korea Herald.) Lone Star is the first overseas buyout firm to be indicted by prosecutors in Korea and the court battle is the first for the 12-year-old firm, which became the biggest investor in Korea's financial industry. Hermes Pensions Management Ltd., which runs the largest U.K. pension account, was cleared by a Seoul court of stock manipulation charges in September 2006. The Turmoil Continues: Lone Star Still Seeking to Sell KEB (Jun 2007) U.S.-based investment fund Lone Star is still continuing its efforts to sell a controlling stake in Korea Exchange Bank. The fund, if possible, may sell South Korea's fifth-largest lender before a Seoul court rules on the legality of its acquisition of the bank in 2003, Lone Star Chairman John Grayken said in an interview with Yonhap News Agency on 9 Jun. He said the fund has been in talks with Singapore's DBS Group Holdings Ltd. over the sale of Korea Exchange, but there has not been progress in the negotiations. Grayken said it is difficult to say "when" the fund will sell Korea Exchange, but it may be possible to sell the bank this year if "conditions" are good. In 2003, the U.S. equity fund bought a 50.5 percent stake in KEB for 1.4 trillion won (US$1.5 billion). The fund signed an agreement in May 2006 to sell its increased 64.62 percent stake to Kookmin Bank, South Korea's top lender. However, in November 2006 the fund stopped the deal, which was expected to give it a profit of more than 4 trillion won, citing the Seoul prosecution's investigation into the alleged illegality of its takeover of Korea Exchange. The Seoul court is assessing whether there was any wrongdoing by Korean government officials and former bank officials involved in the sale and an allegation that Korea Exchange's financial strength was deliberately underestimated to facilitate the bank's sale to Lone Star. (Source: Yonhap News.) Lone Star sells 13.6 pct stake in Korea Exchange Bank (Jun 2007) Lone Star Funds said on 22 Jun that it had sold a 13.6 percent stake in Korea Exchange Bank (KEB) for 1.19 trillion won (US$1.28 billion) through a block sale. Lone Star Funds, previously holding a 64.62 percent stake in South Korea's fifth-largest lender, sold 87.7 million KEB shares for 13,600 won each to international and local financial investors. "The purpose of this sale was to pay down debt,”said LSF Chairman John Grayken.“Lone Star still owns 51.02 percent of KEB and will continue to hold this investment for sale to a strategic investor.” "We are actively looking for a strategic investor who can take KEB to the next level,”he added. The sale price was set at a 6.8 percent discount from Thursday's closing price of 14,600 won. KEB shares closed down 3.42 percent at 14,100 won on the Seoul bourse. Combined with 354.2 billion won worth of Lone Star Funds received in dividends in February, it has so far recouped 1.55 trillion won, or 71.8 percent of its total investment in KEB. The firm bought a 50.5 percent stake in the lender for 1.4 trillion won in 2003, and invested 2.2 trillion won in KEB in May last year. Hana Financial Group, the nation's No. 3 financial services group by assets, and the National Agricultural Cooperative Federation (Nonghyup) said that they participated in the block sale. Each bought less than 1 percent of the shares offered by Lone Star Funds. The nation's top lender, Kookmin Bank, and Singapore's DBS Group Holdings Ltd., which had held talks to buy KEB, said they did not participate. The sale comes less than two weeks after Lone Star Chairman John Grayken told Yonhap News Agency that the fund may sell KEB before a Seoul court rules on the legality of its acquisition of the bank. The Seoul court is assessing whether there was any wrongdoing by South Korean government officials and former bank officials involved in the sale. They are also looking into an allegation that Korea Exchange's financial strength was deliberately underestimated to facilitate the bank's sale to Lone Star. In the midst of the legal dispute, the buy-out funds' talks with two prospective buyers fell apart. Lone Star Funds signed an agreement in May last year to sell all its shares to Kookmin Bank. However, in November last year the fund stopped the deal, which was expected to give it a profit of more than 4 trillion won, citing the Seoul prosecution's investigation into the legality of its takeover of Korea Exchange. Earlier this month, DBS Group Holdings said it withdrew from talks with Lone Star Funds over acquiring KEB. (Source: Yonhap News.) ROK Media: Lone Star May Get Away Scot-Free (Jun 2007) The offshore investment firm Lone Star is likely to slip out of Korea quietly without paying any tax from selling its stakes in Korean firms worth W2.15 trillion (US$1=W937). The fund has apparently been scaling down its investment in Korea by selling off its stake in Kukdong Engineering & Construction Co., STARLease Co., and a 13.6 percent stake in Korea Exchange Bank on June 21 and 22. Since the U.S. firm is for the purpose of these transactions based in Belgium, it will probably be spared capital gains tax due to a dual taxation agreement between Seoul and Brussels. The National Tax Service says Lone Star held and sold its stake in the three Korean companies through Belgian subsidiaries called LSF-KEB Holdings, KC Holdings and HL holdings. The NTS slapped W140 billion in 2005 on Lone Star’s earnings from the sale of the Star Tower building in Seoul, also through a Belgium-based company, Star Holdings. At the time, the NTS, following the Finance ministry's decision to ignore a double taxation agreement with Belgium since the firm is deemed to be a paper company without any substantial role in the Korean investment, applied a taxation agreement with the U.S. instead, referring to an exceptional provision that Korea can levy taxes on earnings from stock transactions by a company in which real estate accounts for more than 50 percent of its assets. The NTS is now considering taxing Lone Star by proving that Lone Star Korea, the fund’s Korean branch, played the key role in the sale of Kukdong Engineering and Construction, which would make Lone Star a de-facto resident company. In a parliamentary hearing to confirm his nomination last July, NTS Commissioner Jeon Goon-pyo expressed confidence that Lone Star can be taxed on its stellar earnings. But it is proving far from easy to show that Lone Star has a place of business here since offshore funds including Lone Star make major decisions at their headquarters. An NTS official admitted the agency is finding it difficult to tax Lone Star. (Source: Chosun Ilbo.) (SITE NOTE: Lone Star made investments in Kukdong Engineering and Star Lease through its affiliates in Belgium, with which South Korea signed a treaty to avoid double taxation, so Lone Star is not obliged to pay taxes for the investment gains. This has been the crux all along. From the beginning the ROK knew that the Belgians would NOT renegotiate the treaty, so it was a dead issue. However, the ROK wanted its pound of flesh. Thus it manipulated the laws and changed the playing field, in violation of international agreements. Seoul City taxes were ruled unconstitutional -- but if the whole premise was to get Lone Star and other investors to desert Korea, it has succeeded admirably.) On 26 Jun it was reported that the Financial Supervisory Commission (FSC) would carry out a ``thorough'' screening on the eligibility of a new owner of the Korea Exchange Bank (KEB) if its current owner Lone Star Funds sells its controlling stake in the country's fifth largest lender. This was viewed as an indication that the regulator won't endorse Lone Star's KEB sale before a court ruling is issued on the legality of the fund's acquisition of the bank in late 2003. Lone Star Funds Chairman John Grayken has said he was looking for a strategic investor who can take over the KEB, and that the sale can be complete before the court ruling. (Source: Korea Herald.) (SITE NOTE: This again shows how the ROK government can stack the deck. South Korea's tax officials continued to dig into the fund's sale of Kukdong Engineering & Construction Co., a local builder, to a business group in Jun 2007 to tax the profits from the sale. The fund is believed to have made a combined 1.5 trillion won in profits by selling shares in Kukdong Engineering & Construction, Starlease and the Korea Exchange Bank (KEB) at the end of last month. The Seoul court is also looking into claims that there was wrongdoing by the government and former bank officials during the KEB sale to Lone Star in 2003. The U.S. fund says it is looking for strategic investors for its remaining 51.02 percent stake in KEB, speeding up its move to dispose of its investment in South Korea before the Seoul court rules on the case.) S. Korea rejects Lone Star's tax appeals (Jul 2007) On 5 Jul the National Tax Tribunal rejected three appeals by the U.S. fund Lone Star against W101.7 billion (US$110.7 million) in punitive taxes on the profits from its sale of the Star Tower Building in Seoul (US$1=W938). Lone Star bought the building for W663.2 billion in June 2001 and sold it for W930 billion in December 2004, earning W296.8 billion in profits. Lone Star paid no taxes on the transaction at the time but was slapped with a W101.7 billion bill by the National Tax Service as a result of a tax probe in 2005. Lone Star Funds filed the complaints in March 2006 against the tax authorities' decision to impose the back taxes on the fund's gains from the 900 billion won ($979.3 million) sale of the Star Tower building in December 2004. Lone Star submitted the appeal, arguing that it is exempt from the taxes since its Belgium-based Star Holdings conducted the sale. Seoul and Belgium have signed a double taxation avoidance agreement. In March 2007, Lone Star appealed, saying Star Holdings was a bona fide company and therefore Korea's dual taxation treaty with Belgium should apply. At the time, the NTS said Star Holdings, the Belgium-based firm that held the Star Tower stocks, was a paper company, so it decided to consider Lone Star a U.S. company and applied a provision in the Korea-U.S. taxation treaty. The NTT said Star Holdings is a conduit or paper company founded for the purpose of avoiding tax, carries out no normal business activities, and has no substantial governance and management rights over income. Lone Star is now threatening to sue in a Korean court. "We have decided unanimously to turn down Lone Star's appeals," the National Tax Tribunal said in a statement. "We have concluded that the fund's Belgian unit has been set up primarily to avoid taxes, not to do normal business activities." Lone Star said it would appeal the ruling in the Korean courts. "Lone Star respects the National Tax Tribunal's view but is disappointed in this decision and will appeal it in the Korean courts," the fund said in a statement. The tribunal's decision could widen the ongoing friction between the Dallas-based fund and South Korea's government. (Source: Hankyoreh News and Chosun Ilbo.) (SITE NOTE: With the latest tax ruling, I wonder how Korea would react if foreign countries applied the same rules to ROK corporations that are setting up operations overseas. It would be interesting to hear their squeals of foul play and their protests in the media. But it'll never happen...I think.) Lone Star Confirms Talks With HSBC on KEB Sale (Aug 2007) U.S. private equity fund Lone Star confirmed that it has been in ``exclusive talks” with London-based HSBC to sell its controlling stake in Korea Exchange Bank. HSBC Holdings Plc said its flagship subsidiary, Hong Kong and Shanghai Banking Corp., is in talks with Lone Star to buy a majority stake in South Korea's fifth-largest lender. HSBC said if an agreement is reached, the transaction would be conditional on obtaining the necessary regulatory approvals in Korea and elsewhere. In June, Lone Star sold a 13.6 percent stake in KEB for 1.19 trillion won ($1.26 billion) through a block sale and said it is looking for strategic investors for its remaining 51 percent stake in KEB. Lone Star, which bought a 50.5 percent stake in KEB in 2003 and later increased its holdings to 64.6 percent, scrapped a $6.8 billion deal to sell its whole stake in KEB to the country's top lender Kookmin Bank in November last year amid legal disputes. A Seoul court is assessing whether there was any wrongdoing by South Korean government officials and former bank officials involved in the sale of KEB in 2003. The court is also looking into an allegation that KEB's financial strength was deliberately underestimated to facilitate the bank's sale to Lone Star. The Seoul Central District Court is currently reviewing Lone Star's alleged violation of the Securities Law in 2003. However, sources close to the deal said HSBC may sign a memorandum of understanding with Lone Star to acquire KEB as early as late this month. HSBC conducted a due diligence on KEB in early July to start price negotiations with Lone Star, they said. HSBC launched unsuccessful bids to buy Korea First Bank in 1998 and Seoul Bank in 1999 in the wake of the Asian financial crisis. Last year, the bank said it was not interested in participating in merger deals in South Korea and instead would pursue ``organic growth’’ to increase its presence by establishing a local subsidiary. (SITE NOTE: Comically, the local banks cried foul claiming that Lone Star "misled" them into thinking that it would reopen its bids to local banks after its tax troubles were resolved.) NTS Launch Second Tax Probe (Aug 2007) The National Tax Service has launched a fresh probe of the U.S. private equity fund Lone Star, this time over the sale of its stake in Kukdong Engineering & Construction and StarLease. Lone Star said NTS officials carried out a 13-hour raid of its office in Yoeksam-dong, Seoul, on 22 Aug. They seized documents on the sale of Kukdong Engineering & Construction, the company said. This is the second tax probe of Lone Star since 2005. After the 2005 investigation, the NTS slapped Lone Star with W140 billion (US$1=W941) in fines and additional taxes for profit gained from the sale of the Star Tower Building in Seoul. In the latest probe, the NTS hopes to review ways to tax the offshore fund for its gains of W1.5 trillion from the sale of stakes in Kukdong, StarLease and Korea Exchange Bank. But Lone Star chairman John Grayken told Reuters his firm owed no Korean taxes on recent deals here, citing a dual taxation treaty between Korea and Belgium, where Lone Star's subsidiaries for global mergers and acquisitions are based. “While we are disappointed by yet another unannounced raid of our offices, we are committed to cooperating fully with their investigation,” he said. (Source: Chosun Ilbo.) Tax Service faces lawsuit as Lone Star fights back (Sep 2007) On 28 Sep Lone Star Funds filed a lawsuit against the National Tax Service, demanding that the authority rescind its decision to slap a tax on the U.S. private equity firm’s gains from selling the Star Tower office building in southern Seoul, the Seoul Administrative Court said. “Lone Star claims that it is not subject to the tax payment on the Star Tower sale because the sale was carried out by its Belgium operation and is under the protection of the Korea-Belgium tax treaty,” said a spokesman for the court. Lone Star’s Seoul office declined to comment. Insight Communication, a PR firm hired by Lone Star’s U.S. headquarters, said it could not offer further information. Lone Star purchased Star Tower, now renamed the Gangnam Finance Center, in 2001 for 620 billion won ($677 million), and sold it to the Government of Singapore Investment Corp. for 900 billion won in December 2004, turning a profit of 280 billion won. The deals were conducted by Star Holdings, a Belgium-based operation of Lone Star. Korea’s tax authority imposed a 61.3 billion won tax on the profits from the sale, based on the rationale that Star Holdings is a paper company established for the purpose of evading taxes. Lone Star filed an appeal against the measure, but the National Tax Tribunal turned it down in July. However, Lone Star has consistently argued that Korea and Belgium have a double-taxation avoidance agreement. “According to the treaty Korea has with Belgium the tax on the gain from the sale of the shares is taxable in Belgium, not Korea,” the fund said in a recent release. The National Tax Service raided Lone Star in late August to probe the recent sale of its stake in Kukdong Engineering & Construction and Star Lease. The authority has been looking into ways to levy taxes on the equity fund for its 1.5 trillion won in capital gains from the sell-off of its stakes in Kukdong E&C, Star Lease and Korea Exchange Bank. (Source: Joongang Ilbo.) Court upholds taxes for Star Tower deal (Nov 2007) A ruling in a tax case on 7 Nov by the Seoul Administration Court contrasts sharply with an earlier judgement by the court on the use of paper companies to avoid acquisition taxes in the course of business deals. The courtsaid it was fair for the Gangnam District Office to levy an acquisition tax on the Government of Singapore Investment Corporation for its December 2004 purchase of Star Tower, currently known as the Gangnam Finance Center, in southern Seoul, from U.S. private equity firm Lone Star. The Singaporean company used two paper companies to complete the transaction, with neither holding fully 51 percent of the property. Under Korean law, a company buying more than 51 percent of an asset is subject to acquisition tax as the “controlling shareholder.” The Gangnam District Office slapped a 17 billion won ($18.7 million) acquisition tax on the deal, reasoning that the two firms were merely paper companies that were not officially in operation, and that the Singaporean government company was the controlling shareholder. The Seoul court said, “As the mother company has full control of its two subsidiaries, the legal liability for share acquisition [in Star Tower] will go to the Government of Singapore Investment Corporation.” The verdict contrasts with a judgement made on Oct. 31, 2006 in which the same court found that Ocmador Pacific B.V., based in the Netherlands, was not subject to an acquisition tax despite acquiring ING Korea Property using two paper companies to each hold 50 percent of the asset. The Jongno District Office imposed an acquisition tax of 2 billion won on the deal and the company filed suit against the measure. The court favored Ocmador Pacific. It said, “Defining those subsidiaries as paper companies simply aimed at illegally saving taxes is hard.” (Source: Joongang Ilbo.) Appeals court says Lone Star owes $27 million: Tax ruling favors Seoul government and overturns a previous decision (Dec 2007) On 5 Dec, the Korean appeals court overturned a lower court ruling and ordered the U.S.-based Lone Star Funds to pay the city of Seoul 25.2 billion won ($27 million) in taxes and penalties. The Seoul High Court made the ruling. Kim Ji-ho, a Seoul-based spokeswoman for Lone Star, declined to comment. Lone Star is allowed to appeal the ruling, the government said. Lone Star filed a lawsuit against the city last August, arguing that additional taxes it slapped on its purchase of a 45-story building in 2001 were unreasonable. Under Seoul tax laws, companies incorporated for more than five years pay lower registration taxes on properties they acquire in the city. The office complex was purchased by Lone Star’s Star Tower subsidiary, C&J Trading, which had been incorporated for more than five years when the transaction was made. The company was established in 1996 but has shown no business transactions since then. Lone Star bought the firm in 2001. The Seoul government said it was due the additional taxes in June 2006 because Star Tower was inactive for a period before the transaction. That means the higher tax rate applies to Lone Star. The Seoul Administration Court ruled April 6 that Seoul had no claim to the taxes. The city appealed the ruling. Lone Star is party to other disputes with the Korean government related to the purchase of the Star Tower property. The U.S. buyout fund is also in a legal battle with prosecutors over the purchase of a controlling stake in the Korea Exchange Bank in 2003. The head of the Financial Supervisory Service said in an interview with a foreign media outlet in November that it would rule this month on the long-standing dispute over whether Lone Star Funds is the legitimate majority shareholder in the bank. A decision that Lone Star is not the lawful owner could imperil the fund’s planned sale of a 51 percent stake in KEB to HSBC, Europe’s biggest bank, for $6.3 billion. (Source: Joongang Ilbo.) HSBC Asks for Approval for KEB Takeover (Dec 2007) British banking group HSBC has asked the Financial Supervisory Commission to approve its deal to buy Korea Exchange Bank from offshore private equity fund Lone Star. Hong Young-man, a spokesman for the FSC, said in a briefing on 20 Dec that HSBC submitted the application for approval on 17 Dec, some three months after HSBC signed the deal with Lone Star in September. Hong said the financial regulator will send the bank a letter stating that it will review the application after the ongoing Lone Star legal case is resolved. Prosecutors allege that Lone Star paid an artificially low price for its 2003 purchase of KEB and manipulated KEB Card's stock price. Another FSC official said that the letter will confirm the FSC's position that it cannot approve the deal before the court makes a final ruling and inform HSBC that the case may take a long time to sort out. The Lone Star case is pending in a lower court. The trial has been delayed because witnesses, including Lone Star Fund executives, have not presented themselves to the court. It is unclear when a ruling might be made. HSBC signed the deal under the condition that it can be revoked if HSBC fails to secure the Korean government's approval for the takeover by April 30 of next year. (Source: Chosun Ilbo.) Lone Star Chairman's Seoul Trip Sparks Speculation (Jan 2008) Speculation is rife about why Lone Star chairman John Grayken (52) suddenly agreed to come to Seoul on 9 Jan. The moment he landed, he was banned from leaving the country for 10 days as prosecutors summon him for questioning. Nobody can rule out that he may not be able to return to the U.S. depending on the results of the investigation into alleged irregularities in his firm’s takeover of Korean businesses. Why did he risk it? The immediate purpose Grayken is to testify at the Seoul Central District Court at 10:00 a.m. on 11 Jan for the defense of Yoo Hoe-won, the former president of Lone Star's Korean subsidiary, who is accused of stock manipulation in connection with a controversial deal involving Korea Exchange Bank's credit card unit. Soon afterwards, Grayken will go directly to the prosecutors' office for questioning. A prosecutor said, "I don't understand why he abruptly volunteered to testify, given that his testimony is not essential in the investigation." An official with the Seoul Central District Court also said, "We've accepted his request to testify although his testimony is not crucial to the proceedings." When Lone Star took over Korea Exchange Bank in 2003, Grayken did not even attend the signing ceremony in Seoul. That is why there is speculation that he is now here for some other purpose. -- Does Grayken want to meet Eldon? One plausible scenario is that Grayken has an urgent reason to meet somebody here. Some speculate he wants to meet the British financial expert David Eldon, a top competitiveness policy adviser to president-elect Lee Myung-bak, to get help with his plan to sell Korea Exchange Bank. In that scenario Lone Star, which has agreed to sell the bank to HSBC by April 30, needs Eldon's influence. Eldon, a British citizen, worked for HSBC for 37 years. Though an American, Grayken lives in London and Ireland. A bank official said, "I understand that Eldon is personally acquainted with Grayken." -- Does Lone Star need to sell KEB fast? Since Lone Star’s products are private equity funds with maturity dates, Lone Star needs to sell Korea Exchange Bank fast to prevent a liquidity crisis, some experts say. If Yoo is convicted, he will lose his qualification as the bank's largest shareholder and the sale of bank may be canceled. In that event, it is likely the U.S. government will comply with the Korean government's request to extradite three Lone Star executives -- Steven Lee, the former head of the fund’s Korea operations, Ellis Short, vice chairman of Lone Star, and the firm's general counsel Michael Thompson -- for whom arrest warrants are out. Grayken might have felt the need to fly to Korea well in advance to turn the court proceedings to his advantage. It would be a harsh blow to Lone Star if the three executives were to stand trial in Korea, and it could be impossible for the firm to sell Korea Exchange Bank. In the belief that the Lee Myung-bak administration is more business-friendly than the Roh Moo-hyun government, Grayken, observers speculate, is trying to make a good impression on the new Korean government. (Source: Chosun Ilbo.) Grayken's Testimony: Denies Wrongdoing (Jan 2008) Lone Star Funds chairman John Grayken appeared in a Seoul court on 11 Jan to testify in a case of illegal stock manipulation. Grayken testified at the Seoul Central District Court as a defense witness for Paul Yoo, the president of Lone Stars Korea unit, who is under trial for suspected manipulation of the stock price of Korea Exchange Banks credit card unit to lower its acquisition price in 2003. "I think its completely untrue. Its totally implausible my senior executive would plot to commit a crime," the 51-year-old chair said in court. Graykens testimony may put pieces together to help the court make a ruling that could allow the government to approve of Lone Stars plan to sell its 51 percent stake in Korea Exchange Bank to HSBC Holdings Plc. HSBC agreed to buy the controlling stake for $6.3 billion. Yoo is accused of spreading false information of a capital reduction to artificially cut down the stock price of KEBs credit card unit. Grayken is defending Yoo, who claims that Lone Star headquarters had discussed a possible capital reduction. Grayken had commented that acquisition of the credit card unit was a very risky investment for KEB, which was pursued because of pressure from financial regulators, Bloomberg reported. He said the Financial Supervisory Service had informed us it was our responsibility to participate in the stabilization of the financial system. (SITE NOTE: The prosecutors sought a 10-year prison sentence on 16 Jan during the trial of Paul Yoo for alleged stock price manipulation and spreading false rumors of a capital reduction of KEB. Prosecutors also asked for a fine of 4.2 billion won for the Korean representative. Yoo was indicted last year along with Lone Star for allegedly rigging the stock price of KEB's credit card unit. Grayken denied any wrong-doing on the part of Yoo and Lone Star.) A guilty verdict could threaten Lone Stars legitimacy as KEBs owner. If Lone Stars ownership status is not legitimate, regulators can order the fund to cut its stake to 10 percent or less, according to reports. According to its lawyers, it could take at least three years for a final court ruling to come through because of appeals. The controversy runs deeper than Yoos indictment. Korean prosecutors also allege the banks sale to Lone Star at an artificially lowered price involves a political conspiracy. The sale of KEB, the countrys fifth-largest lender by market value, has also sparked social controversy concerning the role of foreign funds in Korea. A series of probes have reinforced a sentiment of hostility toward foreign investors, some observers say. In November, Grayken, who founded the Dallas-based fund in 1995, said the probe is a politically motivated investigation driven by antiforeign investor sentiment that persists in certain segments of Korean society. Lone Star is the first overseas buyout firm to be indicted by Koreas prosecutors. The funds attempt to sell its KEB stake to Kookmin Bank in 2006 crumbled amid frustrations over the legal dispute. Lone Star and HSBC hope to have the deal concluded by their April deadline. (Source: Korea Herald.) Grayken Grilled -- and Prosecution extends Travel ban 10 days till 29 Jan (Jan 2008) Prosecutors questioned Lone Star chairman John Grayken over alleged irregularities in the offshore fund’s purchase of Korea Exchange Bank at a knockdown price. Grayken had been grilled for 11 hours starting on 14 Jan. Supposedly questioning Grayken took anywhere between twice to five times longer than usual "since he is a foreigner." (SITE NOTE: WHAT BULLSHIT!!!) The questioning continued each day -- 12-hours a day -- for 10 days concluding on 23 Jan. Grayken reportedly denied his company lobbied Korean government officials to purchase KEB at a rock-bottom price or conducted insufficient due diligence. He also denied stock price manipulation charges against the offshore fund's vice chairman Ellis Short and general counsel Michael Thomson. The two Lone Star executives are accused of fixing the stock price of KEB's credit card arm. Grayken claimed his firm respected the Korean stock exchange law. Meanwhile, the Wall Street Journal on 14 Jan said the Korean travel ban on Grayken “highlights risks of doing business” in Korea. Grayken arrived in Korea as a witness in a case on Lone Star’s alleged irregularities, but Korean authorities placed a 10-day travel ban on him. “Such treatment of foreign investors presents a public-relation challenge for president-elect Lee Myung-bak,” the daily comments, who was elected on a platform of economic growth and reinvigoration through more foreign investment. (Source: Chosun Ilbo.) For foreign investors, the eventual outcome of the ongoing investigation into Lone Star Funds, the U.S. investment firm, will be “a good indication of how Korea will treat other foreign investors in the future.” He warned about the case’s “significantly negative impact” on foreign direct investment. Many Koreans seem upset that Lone Star stands to make huge profits from its Korean investments and that it will not pay taxes here because of a legal tax treaty. “In the most competitive business environments, as long as you follow the law, there is no negative concept called ‘excessive profits,’” American Chamber of Commerce President Tami Overby said. The prosecution on 17 Jan extended the overseas travel ban imposed on John Grayken, chairman of Lone Star Funds, another 10 days for further questioning over alleged irregularities involving the fund's acquisition of the Korea Exchange Bank back in 2003. Grayken, who arrived on Jan. 9, was prohibited from leaving the country until Jan. 29. (SITE NOTE: It appears that Grayken is sticking to his story and the prosecution are trying to wear him down -- but can't use water torture or beatings to get a confession.) On 23 Jan it was reported that the Supreme Prosecutors' Office "cannot decide at the moment" whether to indict John Grayken. Wrapping up 10 days of questioning Grayken, prosecutors lifted the exit ban that has been imposed on him since his arrival on Jan. 9, and that was initially to expire on 29 Jan. Grayken pledged to return to Seoul when the prosecutors summon him for further questioning, but his pledge is not legally binding. If Grayken and other U.S. executives of Lone Star ignore summonses in the future, the probe may be permanently left in the dark. The prosecution did not elaborate on whether prosecutors secured evidence to prove Lone Star's lobbying allegations, though it did say that a few facts not known before had come to light. (SITE NOTE: The bottom line is that they could not shake Grayken from his story that Lone Star had done nothing wrong.) Lone Star Seeks Refund on $125 Mil Tax on KEB Sale (Jan 2008) U.S. equity fund Lone Star has filed a motion for a refund on taxes it paid in Korea last year. On selling its stake in Korea Exchange Bank last year the fund paid more than US$125 million in taxes. The National Tax Service says Lone Star paid the tax last November, 10 percent of the transaction costs of selling its KEB shares in June last year. The taxes were paid through a brokerage, the same one that arranged Lone Star's block sale of its KEB shares to 144 investors at home and abroad. Lone Star's motion is for a refund on the taxes deducted in the selling process. It claims its tax obligations with respect to the bank sale lie in Belgium, where the head office in charge of the transaction is located. (Source: Chosun Ilbo.) (SITE NOTE: It'll be interesting if the NTS turns down the refund request from Lone Star which will then place the international treaty on the table. NTS had previously ruled -- much to the dismay of international investors -- that the Belgium headquarters was a tax shelter and did not qualify for the tax shelter. This will test it in court dependent on how the NTS rules.) Lone Star Funds Guilty of KEB Stock Rigging (Jan 2008) A Seoul court ruled that Lone Star Funds was guilty of rigging stock prices in the process of merging the credit card unit of the Korea Exchange Bank (KEB) with the bank in 2003, complicating Lone Star's planned sale of KEB to HSBC. The Seoul Central District Court handed down guilty verdicts on Lone Star, KEB and Paul Yoo, head of the U.S. investment fund's Seoul office, on almost all the charges laid down by the prosecution, including stock manipulation. The court sentenced Yoo to a five-year prison term. (SITE NOTE: Bloombergs.com stated, "Lone Star Funds' South Korean country head Paul Yoo was jailed for five years for stock manipulation in a ruling that may accelerate the retreat of foreign investors from Asia's fourth-biggest economy. The Seoul Central District Court today delivered the verdict on Yoo, who was accused of driving down the price of shares in a unit of Korea Exchange Bank to buy it cheaply. Yoo, 57, said he'll appeal against the verdict. The bank dropped 5 percent in Seoul trading after the ruling. ``The court decision is likely to discourage foreign investments in Korea, where unpredictability about the legal system is raising investment uncertainties for foreigners,'' said Kim Sang Jo, a professor of international trade at Hansung University in Seoul.The ruling is expected to complicate the planned sale of the bank by the U.S. fund to HSBC. The lawsuit was part of a broader investigation into Lone Star, centering on allegations that the U.S. firm lobbied Korean government officials to exaggerate the bank's financial problems so that it could buy the bank at a price cheaper than market value. Following the court decision, the Financial Supervisory Commission (FSC) reiterated that it will not endorse the KEB sale to HSBC until the court also delivers a ruling on whether the Korean bank was deliberately sold for a less than fair price. Yoo had been indicted without physical detention on charges of intentionally driving down the stock price of KEB's credit card unit in collusion with Lone Star executives to take it over at a lower-than-market price. Yoo and Lone Star allegedly spread false rumors that a capital reduction of the unit was imminent. He was also indicted for breach of trust, tax evasion, and refusal to testify at the National Assembly. The court ordered the KEB and LSF-KEB, a Belgium-based unit which holds Lone Star's controlling stake in KEB, to pay 25 billion won each in fines. The court said they reaped 10 billion won and 12.3 billion won in benefits, respectively, through the stock rigging. ``At that time in 2003, KEB Credit Card had impaired capital and Lone Star likely wanted a capital reduction. However, the fund was aware that the reduction was unavailable at that time. But it spread the rumor in order to make improper gains by dropping the stock price, and that is a fraudulent act,'' the court said in the ruling. Lone Star said it will appeal. John Grayken, chairman of Lone Star Funds who took the stand here as a witness for Yoo last month, said in a statement that Lone Star is disappointed at the ruling and is confident that the verdict will be reversed. He said that Lone Star executives neither tried to nor actually did manipulate the stock. Grayken testified last month that he had received a report in advance about the credit card unit takeover plan which included the capital reduction, according to prosecutors. (NOTE: Grayken stated, “There is simply no credible evidence to support the court’s findings.”) (SITE NOTE: Loan Star and Korea Exchange Bank were also found guilty of stock manipulation and each fined 25 billion won ($26 million). ``We put top priority on holding a fair trial,'' said presiding Judge Lee Kyung Choon at the end of the case, which began in March last year. ``During the 30 sessions I'm sure the defendants had opportunities to fully defend themselves.'' The commentary of most blogs and myself is that "fair trial" is determined by the prevailing judgement of society -- and the outcome was set before it even began.If the ruling is upheld in higher courts, Lone Star will lose its status as the largest shareholder of KEB. The fund is holding a 51.02-percent stake in the bank, and in September signed a $6.3 billion contract with HSBC Holdings to sell it. The deal is valid until April. (Source: Korea Times.) UK's HSBC closer to control of KEB (Mar 2008) Britain’s HSBC cleared a hurdle in its $6,3bn bid for a controlling stake in Korea Exchange Bank (KEB) on 5 Mar, but final approval hinges on resolving legal disputes with stakeholder Lone Star. The favourable ruling by South Korea’s Fair Trade Commission turns the spotlight on the Financial Services Commission, which has repeatedly said it would not approve the sale of KEB shares until all issues over private equity firm Lone Star’s investment in the bank were resolved. Ku Yong-uk, a banking analyst at Daewoo Securities, said it was unlikely a ruling would happen by the April 30 deadline amid a government reshuffle. HSBC Holdings’ KEB stake purchase in the country’s sixth-largest bank is conditional on approval by the Fair Trade Commission and the Financial Services Commission by April 30. HSBC agreed last September to buy 51,02% of KEB from Lone Star in a deal that could propel Europe’s biggest bank into the top ranks of Asia’s third-largest banking market. After missing out on big deals to Citigroup and Standard Chartered, KEB is seen as an attractive option. Last month, a Seoul court found the head of Lone Star’s South Korean business guilty of manipulating the stock price of a KEB credit card unit in order to buy it cheaply. It was the first ruling in a long-running legal battle between South Korean prosecutors and Lone Star, which bought KEB for $1,2bn in 2003. (Source: Business Day.) Lone Star Verdict Bad for Investment: Foreign CEOs (Mar 2008) More than six out of every 10 CEOs of foreign-invested firms said last month's court ruling against the U.S. private equity fund Lone Star would cast a dark cloud over foreign investment in South Korea. This is the result of a survey conducted recently by the Institute of Global Management among 37 CEOs of member companies of the American Chamber of Commerce in Korea and the European Union Chamber of Commerce in Korea. According to the survey results released on 12 Mar, 62 percent of the polled executives said they feel the verdict will make it difficult for them to recommend Seoul to their headquarters as an ideal investment destination. Only 3 percent said the verdict will have a lasting positive effect. Thirty-five percent said it will have no particular effect at all. On Feb. 1, a Seoul district court found Lone Star guilty of stock manipulation in its controversial takeover of the credit card unit of the Korea Exchange Bank. Some 68 percent of respondents said they believe the guilty verdict against Lone Star was "affected by external factors rather than by the case itself." As for those external factors, 49 percent cited the "anti-foreign sentiment prevalent in South Korea." Twenty-seven percent cited the "image of Lone Star created by some media outlets as an eat-and-run vulture investor." Most of the foreign executives expressed high levels of distrust in the South Korean court system. Specifically, 60 percent said Korean courts did not compare favorably to those of advanced nations in their handling of foreign-invested firms. (Source: Chosun Ilbo.) FSC to seek 'favorable' solution to Lone Star case (Apr 2008) Korea is not against foreign businesses. This message, which President Lee Myung-bak pitched to global investors on his first trip to the United States last week, was echoed yesterday by the head of the nation'top financial watchdog. In a shift from the previous administration'position, Financial Services Commission Chairman Jun Kwang-woo said the delayed sale of Korea'fifth largest bank by Lone Star Funds will be facilitated in a way that is "favorable for all parties concerned." The attempt by the Dallas-based buyout fund to sell a controlling stake of Korea Exchange Bank to HSBC has been stalled for months. The financial authorities under the previous government refused to approve the deal, citing legal disputes involving Lone Star. Prosecutors have claimed Lone Star'acquisition of KEB in 2003 was made at an artificially low price. Foreign investors, including Lone Star, have claimed that the delay is an indication of a bias in Korea against foreigners making profits here. "There is a change in the government'stance on the sale of Korea Exchange Bank," Jun said in a press conference in Seoul. Jun returned 21 Apr after accompanying President Lee on his U.S. trip last week. "The previous government was passive, saying it would wait until the legal uncertainty is resolved," Jun said. "But we hope to find a solution as soon as possible that can benefit all parties concerned, considering the signal it could send to the international financial community and the impact it could make on fostering a global financial center in Korea." In a pending legal case, several former Korean government officials are accused of having been involved in lowering KEB'share price to sell the then-ailing bank. Lone Star has not been accused directly, but is not free from suspicion, given its confirmed involvement in a similar case. Paul Yoo, head of Lone Star'Korea operations, was convicted and jailed on Feb. 1 for five years for manipulating the stock price of KEB'credit card unit in order to acquire it cheaply. Lone Star and KEB were also found guilty of manipulation. Last December, Lone Star signed a deal with HSBC, Europe'largest bank, to sell its 51 percent stake in KEB for $6.2 billion. The deal is to expire on April 30. (Source: Joongang Ilbo.) (SITE NOTE: The trouble is going to be how to reverse all the legal precedents -- regardless of how insultingly xenophobic they were -- in this complete turnaround. If the rulings were LEGALLY reversed by the ROK, then it is possible to believe this stance as credible. However, if the previous rulings -- made by individuals still within the administration -- the action will only be eye-wash where they were forced by threats and coercion of the LMB administration. This is the dilemma...how to do it LEGALLY. If reversed by force of will, the LMB administration becomes no better than the Roh administration.) What Next for HSBC's KEB Takeover Deal? (Apr 2008) A question mark hangs over the contract for sale of Korea Exchange Bank between U.S. buyout fund Lone Star and British banking giant HSBC as a key deadline expires at the end of this month. Some Korean industry insiders say KEB has to go on the auction block again. They say the deal with HSBC, struck last September, should be scrapped since it was unfair and done without the participation of Korean banks. Small KEB shareholders on Thursday said the current terms and conditions are advantageous only to Lone Star, the largest shareholder, so the bank should be put to tender again giving domestic banks a fair opportunity. The contract between Lone Star and HSBC is private and both want to maintain its integrity, so it is improbable that anything will change. In September 2007 when they signed the contract, Lone Star and HSBC agreed on the proviso that they could scrap the deal if the Korean government does not approve it by late April this year. When the Chosun Ilbo on 24 Apr asked if they would extend the contract, senior officials of both Lone Star and HSBC said there was “no change.” A Lone Star official said, "There is no change in our belief that HSBC is the best option." An HSBC official said there was “no change in our intention to take over KEB.” They added HSBC chairman Stephen Green will soon call a board meeting to decide on the contract extension. Observers speculate that Lone Star has no reason to take the initiative to scrap the contract because it considers HSBC a safer business partner than any Korean bank, where there would be a belligerent union, controversy over a drain of national wealth and other issues. Regardless of the outcome of the ongoing trial of Lone Star, the only measure the Korean government can take is to strip Lone Star of its status as KEB's largest shareholder and order it to sell its stake in the bank, so it seems highly likely that KEB will go to HSBC one way or the other. The high court is currently reviewing the case against Lone Star over alleged manipulation of KEB Card stocks after Lone Star was found guilty in a district court. A district court will meanwhile make a decision around the end of this year on allegations that Lone Star bought KEB at a dumping price in 2003. Industry insiders predict that once the high court rules around May or June, Lone Star will forgo an appeal to the Supreme Court, the government will strip Lone Star of its status as KEB's largest shareholder and order it to sell -- which it will do, to HSBC. Kookmin Bank, which previously failed to buy KEB as a result of Lone Star's unilateral abrogation of a contract, remains sour, saying Lone Star played an unfair game, excluding domestic banks that were hamstrung by anti-foreign capital sentiment in the country at the time. Kookmin executives are calling for the HSBC deal to be scrapped and an international tender open to all domestic and foreign contenders to be called. Some experts want the government to strike a big deal with Lone Star. They say it will be hard for Lone Star to ignore a government guarantee of a safe escape for a new international bid. But that scenario could again give the impression that Seoul discriminates against foreign investors -- a tough call for a government elected on a business-friendly platform. (Source: Chosun Ilbo.) (SITE NOTE: What's the big deal? SEOUL HAS BEEN AGAINST FOREIGN INVESTORS!!! GET RID OF THE REGULATIONS FIRST AND THEN PEOPLE WILL BELIEVE THEM. STOP THE XENOPHOBIC CLAP TRAP!!! Roh may be gone, but the xenophobic mechanisms are all still in place.) KEB Sale to HSBC Delayed (Apr 2008) With Korean financial authorities showing little sign that they will give quick approval to Lone Star Funds' sale of Korea's sixth-largest bank to HSBC, the two firms extended the deal for three more months on 29 Apr, a day before a self-imposed deadline. "HSBC and Lone Star have agreed to extend, until 31 July 2008, the deadline for completion of HSBC's proposed acquisition of 51.02 percent of Korea Exchange Bank, subject to regulatory approval," said HSBC in a statement. Lone Star's Korean head gets suspended jail term for inflating profits (May 2008) On 2 May a Seoul court gave a suspended prison sentence to a Korean representative of U.S. buyout fund Lone Star Funds for spreading false investment information, but dismissed a more serious charge of embezzlement. Jeong Heon-ju, a representative of Hudson Advisor Korea, which performs the management of assets acquired by Lone Star Funds' local unit, was sentenced to two years in jail, suspended for three years, and fined 500 million won (US$494,000). (Source: Yonhap News.) Jeong was indicted last year. The Seoul Central District Court convicted Jeong of inflating profits to attract investors. But the judge gave a suspended sentence as the manipulation did not result in material losses for investors. The court also dismissed charges that he embezzled US$300,000 from the Texas-based company and evaded taxes. The Supreme Prosecutors' Office said it would appeal to a higher court. (SITE NOTE: A Seoul court ruled that Lone Star Funds was guilty of rigging stock prices in the process of merging the credit card unit of the Korea Exchange Bank (KEB) with the bank in 2003, complicating Lone Star's planned sale of KEB to HSBC. The Seoul Central District Court handed down guilty verdicts on Lone Star, KEB and Paul Yoo, head of the U.S. investment fund's Seoul office, on almost all the charges laid down by the prosecution, including stock manipulation. The court sentenced Yoo to a five-year prison term. These will impact investment in Korea.) HYUNDAI SCANDAL(SEE HYUNDAI SCANDAL for details of Chung Moo-koo's plight in 2006.)BACKGROUND: Few gave Chung Mong Koo much of a chance when he took the helm of South Korea's largest carmaker, Hyundai Motor Co., in 1999. After all, in his 24 years running Hyundai's after-sales service unit, the bland son of founder Chung Ju Yung didn't express any grand vision for the auto business. Turns out, he had been trained to deliver what the company needed most: better quality. This year, Chung, 66, made good on his promise to boost Hyundai's quality to "Toyota (TM ) levels." J.D. Power & Associates' 2004 survey of initial quality -- which counts complaints in the first 90 days of ownership -- showed the Korean auto maker had virtually caught up with Toyota Motor Corp. And Hyundai's Sonata was the top-ranked car in the "entry midsize" category. In 2005, Hyundai started building a revamped Sonata for the U.S. market to challenge Toyota's popular Camry. The new Sonata and Tucson sport-utility vehicle were also key in efforts to expand in Europe, China, and smaller markets. (Source: Business Week.) In April 2006 the Hyundai Motor Company, under investigation in the possible bribery of government officials, said that the family of its chairman, Chung Mong Koo, would donate 1 trillion won or $1.06 billion in shares to show its contrition. Mr. Chung and his son, Chung Eui Sun, were to donate all 22.5 million shares of their shares in the Glovis Company, or 60 percent of the logistics unit, Hyundai's vice chairman, Lee Jeon Kap, said. ''We apologize for causing the public concern and for not taking our full social responsibility as a company that should have been a role model,'' Mr. Lee said. Donations and public apologies are typical ways of expressing contrition by Korean companies. (Source: NY Times.) In May 2006, Chung Mong Koo was charged with embezzling more than $100 million and causing far larger financial damage to companies under his control; is charged with misappropriating 130 billion won ($136 million) to set up slush fund that was apparently used to buy political influence; is also charged with breach of trust, accused of causing more than 400 billion won ($429 million) in damages to companies in Hyundai group The perennial question surrounding Korea's biggest family-owned companies: Is there a father-to-son succession in the works? Speculation about this at Hyundai was when Hyundai Motor group chairman Chung Mong-koo, 68, listed Glovis, the group's logistics business, on the public markets. The public offering reportedly gave Chung's only son, Eui-sun, 35, a 32% interest in Glovis worth $700 million--and enough cash to perhaps later increase his own stake in the world's fifth-largest automobile manufacturer. Might not be a bad investment: Hyundai Motor's share price climbed 50% in 2006. (Source: Forbes.com.) In 2006, he and his family were targeted by the Seoul Supreme Public Prosecutor's Office as part of an investigation into embezzeling 100 billion won ($106 million USD) from Hyundai to create slush funds. Despite a travel ban, Chung left South Korea in April 2006. Chung was arrested on 28 April 2006 on charges related to embezzlement and other corruption. He was convicted of embezzlement and breach of fiduciary duty on 5 February 2007 and sentenced to three years of prison. Chung plans to appeal the sentence and remains free on bail. Chung Mong-koo, had bond set at one billion won, or about $1 million. Reasons for letting him out range from concerns for the 68-year-old's health to concern over the South Korean economy while Hyundai flails around without a leader. Hyundai chief faces 6-year jail term (Jan 2007) Prosecutors demanded a six-year prison term against Hyundai Motor chairman Chung Mong-koo for embezzlement and other charges on 16 Jan 2007, adding to the woes of the largest South Korean automaker. Mr Chung, 68, has been on trial since June 2006 on charges of illegally raising a slush fund from affiliates from which authorities say he spent 69.3 billion won ($74 million) for private and other purposes, including payments to lobbyists for government favors. Chung had been questioned by investigators since March last year about charges that he masterminded a series of malpractices to transfer corporate wealth to his son, Eui-sun, the 37-year-old president of the group affiliate, Kia Motors. It is suspected that Hyundai Autonet, a component-maker under Hyundai Automotive, paid higher-than-market value for acquiring its machinery unit Bontech in February 2005, benefiting the younger Chung, who was the majority shareholder of the company. Bontech's stocks were valued at 233,500 won ($247) per share during the acquisition deal. However, in September of the same year, Eui-sun sold his 30 percent stake in Bontech to German high-tech company Siemens AG for just 95,000 won per share. The elder Chung is also suspected of forcing five group affiliates to participate in a rights offering of an aerospace machinery unit, which was to be liquidated after being absorbed by Korea Aerospace Industries in 1999, to relieve himself from joint liability.  Chung Mong-koo He was also charged with inflicting financial damage on affiliates through questionable deals and arrangements that allegedly protected or boosted the financial interests of him and his son, Eui-sun, who heads Kia Motors, the country’s second-largest carmaker. The younger Chung doesn’t face trial. “It’s unavoidable to seriously punish the defendants... because the crimes in this case are grave,” lead prosecutor Lee Dong-ryol said at the trial, which also included other company officials. Chung Mong-koo apologized and pledged to make Hyundai the world’s No 5 automaker if given the chance. Hyundai and affiliate Kia Motors combined currently rank sixth. “I’m sorry for causing trouble over this case,” he told the court. Mr Chung’s defence lawyers called for leniency and asked for a suspended sentence in light of their client’s health and the effects his conviction would have on Hyundai and the entire nation’s economy. Hyundai and Kia account for more than 70 percent of South Korea’s automobile exports. Autos account for about 10% of South Korea’s total exports. It was unclear how the judges at Seoul Central District Court would rule. But South Korean courts have often come under public criticism for being too lenient on business tycoons after they sentenced high-profile chief executives to suspended jail terms in similar corruption cases. (SITE NOTE: The courts have repeatedly allowed those who have embezzled millions of dollars to walk free because of their "service" to the country. There is something wrong with the judicial system that allows a double standard where a poor man in credit debt is forced to destitution and ultimately suicide, while a rich man is allowed to be fined so that he gets to keep the bulk of the funds embezzled and still walk free claiming that as a crook who cheated his company, he is essential to the operations. All that happened was that Chung Moo-koo has structured his family network so that his son and family have a stranglehold on their company -- but the relatives are also fighting for control. This is not healthy for the company -- and not healthy for Korean society.) The verdict and sentencing was scheduled February 5. Mr Chung has been out on bail since late June after two months of detention following his April arrest. The trial has cast a cloud over the company, which also is suffering from a row with its militant labor union that intensified this week with new strikes. (See Hyundai Strike (Jan 2007) for details of illegal union actions and Hyundai giving in to demands. Through 2006, Hyundai’s union has gone on strike every year but one since it was established in 1987. Public sentiment has turned against the union, with local media accusing union workers of selfishness at a time when their company is struggling with the strengthening Korean currency that hurts exporters. Hyundai Motor Co., South Korea's largest automaker, said on 25 Jan 2007 its fourth-quarter net profit tumbled 22 percent, hurt by a firmer local currency and lost production from labor strikes. Some analysts painted a pessimistic view of the automaker's near-term outlook, citing the won's steady rise against the U.S. dollar and the opaque management style of Hyundai Motor Chairman Chung Mong-koo.) Chung Mong-koo Gets Three Years (Feb 2007) Hyundai Automotive Group Chairman Chung Mong-koo was sentenced to three years in prison on 5 Feb for embezzling about 90 billion won ($96 million) in company funds and causing 210 billion won in loss to group affiliates through breach of trust. Chung, 68, was arrested last April after prosecutors claimed he was involved in a series of financial irregularities since 2002, including raising 69.3 billion won in slush funds through six group affiliates and using the money to unlawfully transfer corporate wealth to his family. After spending two months in jail, Chung was released on bail of 1 billion won in June. The Seoul Central District Court, which found Chung guilty on all four accounts presented by the prosecution, however, decided not to revoke the bail. This means that the Hyundai Automotive Chairman will not be detained throughout his court appeal. ``In respecting to the defendant’s right for legal defense and to reduce the impact on the economy, the court will not annul the earlier judgment to grant him bail,’’ said court judge Kim Dong-oh. Hyundai Automotive Vice Chairman Kim Dong-jin, who was indicted with Chung, was sentenced to two and a half years in prison and four years of probation over his involvement in creating the slush funds. Lee Chung-dae, the group’s top finance officer, and Kim Seung-nyon, head of the sales department, were both sentenced to three years of probation. (Source: Korea Times.) Emboldened by the country's democratization, prosecutors and the courts have recently been taking a harsher approach. Experts, for example, were surprised at Chung's sentencing, with many having expected he would get a suspended term. Still, there have been numerous cases of high level corporate executives convicted of shady dealings treated with leniency in the courts or ultimately getting special presidential pardons. In 2005, Chey Tae-won, CEO and chairman of South Korea's top oil refiner SK Corp. had the three-year prison term he received for accounting irregularities suspended on appeal to the Seoul High Court. Convicted Hyundai Motor executive Lee Chung-dae promoted to company president (Feb 2007) South Korea: Hyundai Motor Co. on 15 Feb announced the promotion to president of a top executive convicted this month for assisting Chairman Chung Mong-koo in embezzling company funds. The promotion of Chief Financial Officer Lee Jung-dae to become one of Hyundai's seven presidents was part of an annual reshuffle of executives in the Hyundai Motor Group. "The annual promotions in the Hyundai-Kia Automotive Group will focus on stabilizing global operations and reinforcing its ability to enhance management aimed at putting the customer first," Hyundai said in a statement announcing the changes. Lee, who will retain his position as CFO, is one of 250 executives at Hyundai Motor, Kia Motors Corp. and other group companies affected by the promotions, Jang said. Though convicted on Feb. 5 and handed a 2 1/2-year prison term, the 51-year-old Lee will remain free as long as he stays out of trouble for three years. On the same day, the Seoul District Court sentenced Chung to three years in prison for illegally raising a 103.4 billion won (US$111 million, €84.2 million) slush fund from affiliates and other wrongdoing. Chung, 68, is appealing the ruling and remains free and in charge of the world's sixth-largest automaker. Besides Lee, two other Hyundai executives also received suspended prison terms for assisting Chung. Corruption in South Korea, particularly in the country's ubiquitous family-run industrial conglomerates, known as chaebol, is widely seen as a legacy of decades of military-backed authoritarian rule, which ended in 1987. (Source: International Herald Tribune.) Hyundai chairman renews vow to donate $1.1B (May 2007) Hyundai Motor Chairman Chung Mong-koo, appealing an embezzlement conviction and prison sentence, on 22 May reaffirmed his promise to donate 1 trillion won ($1.1 billion) worth of personal assets to society. Chung, who made the pledge last year as part of a public apology and attempt to earn leniency amid a slush fund scandal, said the money will be donated to the public through an independent committee over seven years. The committee will be set up by end of this year, he said. Chung made the comments during questioning by his attorney at the Seoul High Court at his appeal hearing over a February conviction for embezzling company funds to set up a slush fund. He also answered questions about the donation plan from the presiding judge. The donated money will be used to build an opera house in Seoul and 12 other cultural complexes across the country, Chung told the court. Chung said he hopes some of the money will be used in projects that can help prevent global warming. Chung, one of South Korea's richest men, was sentenced to three years in jail for embezzling the equivalent of more than $100 million in company funds and breach of trust. He remains free during the appeal and continues to run the company, the world's sixth-largest automaker. Chung told the court he has already given 60 billion won ($64.5 million) in cash to a charity and another 60 billion won will be offered within a year. A fourth round of Chung's appeal hearing is scheduled for June 5. (Source: US Daily News.) Korea Deposit Insurance Corp. Files its First-ever Suit Against Executives (Jun 2007) In a related story, after the former chairman of Hyundai Group and several executives took out fraudulent loans they didn’t repay, several major banks did not try to recover the money because they feared the conglomerate would do less business with them, a government agency said yesterday. (SITE NOTE: At the time of the conviction, we noted that the fines did not even cover the amounts supposedly embezzled. We noted at the time that crime DOES pay.) So the Korea Deposit Insurance Corp. did something it’s never done. It filed suit itself to recover a total of 29.1 billion won ($31.4 million) in fraudulent loans made in 1998 and 1999, the state-owned agency said in a release. Korea Deposit Insurance Corp. said on 27 Jun that it will sue Hyundai Group’s Chairwoman Hyun Jeong-eun and former executives of Hyundai Engineering and Construction and Hynix Semiconductor. Both companies, which were Hyundai affiliates at the time, were suffering heavy losses. Hyun is the widow of former Hyundai Group Chairman Chung Mong-hun. As an inheritor, she is thus a defendant, the release said. Hyundai Group released a statement protesting the decision. “The late Chung Mong-hun did everything he could, including donating his own assets to Hyundai Engineering and Construction,” it said. “At that time, Chairwoman Hyun Jeong-eun was not in management.” Woo Byung-woo, head of the special non-performing loan investigation team at the deposit insurance corporation, said eight former Hyundai Engineering executives used false financial statements in 1998 to take out 27.6 billion won in loans they never repaid, and four Hynix Semiconductor executives did the same thing to take out 1.5 billion won in loans in 1999. The late Chung was listed as a defendant in both cases. Under Korean law, the state agency can file a suit to recover money if a financial institution refuses its request to do so. The Korea Deposit Insurance Corp. said it asked the financial institutions affected, including Shinhan Bank and SC Korea First Bank, to file for the compensation. However, the agency said the institutions would not do so because of their business relationships with Hyundai Group. The insurance corporation said it would continue to seek compensation against executives to recoup public funds if financial institutions reject its requests to file such lawsuits. (SITE NOTE: It is noteworthy that the Roh administration approved of the push to allow chaebols such as the Hyundai Group to own its own financial banks -- in direct opposition to the IMF reforms institution after the chaebols caused the "IMF Crisis" in 1997-1998 that brought the country to its knees by its cross-assurances on bad loans through its network of banks. The claims that the banks had sufficient transparency to prevent a reoccurrence by Roh and the Uri Party was used as the justification. It is noteworthy that BOTH the Uri and GNP apparently backed this move as the chaebols provide massive amounts of political funds needed for a presidential campaign.) In a similar case, the Seoul Central District Court ruled in 2005 in favor of three financial institutions, including Korea First Bank, after they filed a lawsuit against Chung Tae-soo, the chairman of the former Hanbo Group, and one of his sons. They had to repay 25 billion won in fraudulent loans. (Source: Joongang Ilbo.) Slap on wrist for Hyundai boss' billion dollar dodgy It was reported on 7 Sep that Hyundai chief Chung Mong-koo had his three-year jail sentence for fraud suspended by a South Korean appeals court, leaving him free to run the world's sixth largest auto maker. The decision not to jail South Korea's second-richest man eliminated concerns over a management vacuum at the company, which is facing a slowdown in overseas sales and increasing competition. (NOTE: A three-judge panel at the Seoul High Court suspended the sentence for five years, meaning that the 69-year-old head of the world's sixth-largest automaker will avoid prison as long as he keeps a clean record during that period. The Prosecution immediately filed an appeal over the suspended sentence.) But the ruling could also revive a long-held debate on South Korea's powerful and controversial "chaebol" - the family-run conglomerates which opponents say have been given special treatment owing to their importance to Asia's fourth-largest economy. "Hyundai Motor is the top enterprise because of its ripple effect on the whole economy. The accused, Chung Mong-koo, is a symbol of Hyundai Motor and our country's automobile industry," Lee Jae-hong, the presiding judge at the Seoul High Court, said while handing down the sentence."I did ask many people, including restaurant waiters, taxi drivers and reporters. The ordinary people leaned toward a suspended sentence," he said. "That means the accused should work hard." (SITE NOTE: Presiding Judge Lee Jae-hong told the packed courtroom that Hyundai Motor has great influence over the nation's economy and Chung, its hands-on leader, is the symbol of the company. "I am also a citizen of the Republic of Korea," Lee said. "I was unwilling to engage in a gamble that would put the nation's economy at risk." Lee said he struggled with the decision, originally set for July 10, and postponed it twice, saying the court needed more time. He said he sought the views of various people, including other judges, prosecutors, lawyers, journalists and "even taxi drivers and restaurant employees." We wonder if the Prosecution will run an investigation on the the three judges bank accounts. Chung embezzled hundreds of millions and a few half-million dollar bribes are a drop in the bucket if he intended to do so. A suspended sentence sets him up also for a pardon in the next round of Presidential pardons.) Hyundai Motor shares rose as much as 2.2 per cent on the ruling and closed 0.6 per cent higher. The broader KOSPI ended up 1.2 per cent. Instead of a jail term, Chung was asked to pay an 840 billion won ($NZ1.29bn) donation, previously pledged by the family, to deliver speeches about transparent management and to write essays about governance to be published in domestic media. Although it suspended the term given in February by the Seoul Central District Court, the high court upheld the lower court's conviction of the chairman for breach of trust, embezzlement of company money and setting up slush funds. Investors had been concerned that uncertainties over Chung's legal battle could hamper Hyundai's expansion plans at home and abroad, even though brisk domestic sales and a smooth conclusion to this year's wage talks are brightening the outlook somewhat. Hyundai Motor Group alone accounts for about 7 per cent of South Korea's total exports and Chung is heavily involved in most decisions at the group. Hyundai ranks among the biggest chaebols in South Korea - the family groups that helped rebuild the economy after the 1950-53 Korean War but were partly blamed for the financial crisis of the late 1990s. Despite reforms brought in after the 1997-98 Asian financial crisis, some conglomerates are still run like family businesses, shifting money among group companies and using complex share ownership networks to control their businesses. (Source: NZ Herald and Money CNN.com.) List of Tycoons, Business leaders and Artists to Accompany Roh to Summit (Sep 2007) Hyundai Automotive Group Chairman Chung Mong-koo and 16 other business leaders were to accompany President Roh Moo-hyun during the second inter-Korean summit from Oct. 2-4. Chung Mong-koo was released from jail on 6 Sep after an appellate court suspended his prison term for embezzling company funds. (SITE NOTE: The Prosecution is appealing the decision. The judge said he took into consideration the opinions of the common people, but NGO groups were up in arms after the second tycoon was released for the same reasoning. The bottomline is that Chung is still under a cloud -- even with a suspended sentence as a convicted felon. However, he is invited to attend the summit with North Korea as a pillar of the business community. (UPDATE: The comments of business leaders of the summit of 2-4 Oct 2008 was that the North was on a shopping trip for free goodies without offering anything in return. Basically, the conditions for doing business in North Korea was less than ideal -- and the DPRK working group was not there to offer anything. Korea Herald on 6 Oct reported that the Hyundai Research Institute in a report issued estimated that inter-Korean business deals would generate up to $150 billion in long-term economic benefits. "The new joint economic projects will deliver North Korea a significant boost to its economy, while reducing the capital cost of unification for the South," the report stated. The report also said the DPRK can expect up to $138 billion worth of long-term economic benefits from the development of special economic districts and other necessary infrastructure investments. The package was to improve the economic conditions in North Korea, while reducing the capital cost of unification for the South. The GNP has already vowed to view economic packages with close scrutiny in the national assembly. Though Roh promised that he would not make any deals without the National Assemby approval, on 6 Oct he ordered his cabinet to map out a plan that the succeeding government cannot water down or scrap...meaning the GNP interference with the declaration which was to be the legacy of his presidency. Unfortunately, all the business leaders backed out of support for any future deals with the North.) U.S. Proxy Advisory Firm Calls for Hyundai Motor Chief to Resign (Mar 2008) Institutional Shareholder Services, a leading independent U.S. proxy advisory firm, said that Chung Mong-koo, chairman of Hyundai Motor Group, should step down, considering the seriousness of his crimes, like the raising of slush funds. The Wall Street Journal reported on Feb. 29 that the ISS recently released a publication to more than 1,600 institutional investors that although Hyundai's sales and profits have significantly increased since Chung took control, his accomplishments did not justify the criminal acts. ISS, a subsidiary of financial risk management analysis firm RiskMetrics Group, is a provider of financial risk management analytics. When Sovereign Global Investment threatened the management rights of SK Corp. and legendary corporate raider Carl Icahn attempted to acquire Korean Tobacco and Ginseng Company ("KT&G"), ISS supported the two foreign investment funds. Experts, however, predict that the firm's recommendation will have little impact on the general meeting of the auto company's shareholders to be held on Mar. 14. As of the end of 2007, Chairman Chung had a 37.27 percent stake, larger than the 30.54 percent held by foreign investors. Kim Hak-joo, head of research at Samsung Securities, said, "The establishment of Chung's slush fund is not news any more, and ISS is not an organization strong enough to bring together institutional investors." (Source: Donga Ilbo.) National pension fund to vote against Hyundai Motor chief (Mar 2008) South Korea's national pension fund said on 12 Mar that it has decided to vote Hyundai Motor Co. Chairman and Chief Executive Chung Mong-koo off the company's board in its annual shareholder meeting this week, because of his conviction for embezzlement and breach of trust. The decision by the National Pension Service, which owns a 4.56 percent stake in Hyundai Motor, is expected to add to pressure on the disgraced chairman, who will seek to be re-elected for another three-year term on the board on 14 Mar. "The fund's committee decided to vote against keeping Hyundai Motor Chairman Chung Mong-koo as the company director on March 14," said an official at the Ministry of Health, Welfare and Family Affairs. The ministry supervises the national pension fund, the nation's biggest institutional investor. It's the first time the pension fund has decided to vote against an owner of a family-run business conglomerate. Chung, who runs Hyundai Motor and its affiliate Kia Motors Corp., was sentenced by a lower court early last year to three years in prison on conviction of embezzling US$100 million in company funds. An appeals court later suspended the sentence for three years, allowing the 69-year-old chairman to run his business as usual, citing his importance to the economy. Early this month, ISS Governance Services, the New York-based investor-advisory group also called for investors to oust Chung from the board, saying his criminal record damaged Hyundai Motor. Together with Kia Motors, Hyundai Motor is the world's sixth-largest automaker by production. Separately, the pension fund said it would also vote Doosan Heavy Industries & Construction Chairman Park Yong-sung off the board of Doosan Infracore Co. The fund holds a 2.92 percent stake in Doosan Infracore. Park was sentenced to a three-year prison term in 2006 for embezzlement, but his term was suspended later for five years. (Source: Hankyoreh: Yonhap News.) AND THE WINNER...Chung Mong-koo retains board seat (Mar 2008) Hyundai Motor Co., the country's leading automaker, said 14 Mar that its chairman and chief executive officer was reelected to its board at a shareholders meeting earlier in the day despite a vote by South Korea's pension fund against him. Chung Mong-koo, 63, will have a board seat for another three-year term, according to the company. BUT...Chung Eui-sun Resigns as Co-CEO of Kia Motors (Mar 2008) The son of Hyundai Motor Co. Chairman Chung Mong-koo resigned on 21 Mar as one of three co-chief executive officers of Kia Motors Corp., ending an often-rocky three years at the helm of the nation's second-largest carmaker. Some analysts say the departure of Chung Eui-sun, 39, from the CEO job of Kia Motors is likely to weaken his position in the Hyundai-Kia automotive group. The junior Chung is widely expected to succeed his father within years. Top court sends back embezzlement case on Chung (Apr 2008) South Korea's top court on 11 Apr ordered a lower court to re-examine its ruling that Hyundai Motor chairman Chung Mong-koo give corporate lectures rather than doing community service involving physical labor for embezzlement of corporate funds. Chung was convicted last year by the Seoul High Court of embezzling over 90 billion won (US$92 million) of company money to create a slush fund, financially hurting affiliates by engineering a transfer of stocks to his son at lower-than-normal prices and conducting other business malpractices. The appellate court sentenced Chung to a suspended prison term, and ordered him to give speeches to business executives and write articles in the local media on "corporate transparency" while acting on his promise to donate 840 billion won (US$861 million) to social charities to indicate his regret. Prosecutors appealed, saying the ruling veers far from previous sentences involving community service that requires physical labor at charity organizations and other non-profit outfits. (SITE NOTE: This is our view that a poor man who defaults on his credit card debt has his house taken away, his furnishing sold and his family thrown on the streets. But if you're a rich man, you can pretend you're sick to get out of jail -- and then run your company as though you never left -- then promise to give money to charity and never give a cent -- and then get off by giving lectures and writing papers (which your underlings do for you). The whole process stinks!!! The ruling for Chung prompted public outcry and that was the reason the prosecutors appealed. The public is also getting fed up with the judges being in the pockets of the rich men.) "It is not clear what the ruling exactly means by speeches and articles," the Supreme Court said, adding the sentencing might also encroach upon the freedom of speech of the accused. The highest court ordered the lower court to deliver a "lawful and appropriate" sentence, saying, "When a ruling that orders community service is dismissed, so is a suspended jail term." The prosecution had sought six years' imprisonment for Chung, accusing him of raising slush funds to bribe politicians and government officials in return for business favors. But they stopped short of challenging the three-year jail term suspended by the appellate court for five years. (Source: Yonhap News.) |
