Lone Star exec arrested in Korea

Prosecutors in Korea said they have “detained” Yoo Hoe-won, the president of Lone Star Advisors Korea on charges of embezzlement, breach of trust and the misappropriation of funds.

Hoe-won was a key participant in Lone Star’s acquisition of the Korean Exchange Bank (KEB).

Dallas-based Lone Star acquired 64% of the bank from the Korean government in 2003 for about $1.4 billion and has been working to complete a sale since October. Korea’s Kookmin Bank was in line to buy Lone Star’s shares of KEB, but that deal has been stalled during the investigations of Lone Star. Kookmin announced last week that it plans to shelve its intended acquisition, so long as investigations stay ongoing.

Hoe-won’s arrest is the latest in a nearly eight-month investigation of several private equity firms in Korea, with Lone Star being one of the most visible targets. Among the other firms that have been investigated for tax evasion and other issues are The Carlyle Group, Goldman Sachs, Newbridge Capital and Singapore’s GIC.

But the arrests likely won’t end with Hoe-won. Korea’s Supreme Prosecutor said that the detention of Hoe-won is a “starting point … for a full-fledged investigation into … the sale of KEB,” by the Korean government to Lone Star.

Plus, Korean prosecutors are reportedly seeking the extradition and arrest of Steven Lee, the former CEO of Lone Star in Korea, who currently resides in the United States and who is accused of embezzling funds from Lone Star during his tenure in Korea. Separately, Lone Star also faces charges that it bribed Korean government officials during its acquisition of KEB.

As previously reported, Lone Star has been under investigation in Korea on multiple charges and by multiple agencies, including the National Tax Service, the Board of Investigations and Audits (BIA), the Supreme Prosecutor’s Office, and Financial Supervisory Service, among others. Some of these investigations, such as those being conducted by the BIA, are ongoing.

Separately, in a response to the seemingly growing anti-foreign private equity sentiment in Korea, the Ministry of Finance and Economics issued a statement last week that said that media reports of alleged harassment of foreign firms in Korea are “groundless and hapless.”

Hoe-won’s arrest comes after Lone Star Chairman John Grayken went to Korea last month to meet with prosecutors and other officials. Grayken offered sincere apologies to the Korean government and the people of Korea. And he said the firm plans to provide financial remuneration or pay fines for any illegal activities in the country.

Grayken also said that Lone Star would pursue Lee in the United States for his alleged embezzlement.