Lone Star trapped in legal issues over KEB stakes

Lone Star Funds may be ordered to sell a majority of stakes in the Korea Exchange Bank unless it meets legal requirements as KEB's top shareholder.

"Lone Star Funds is not expected to meet the requirements as the KEB's legitimate major shareholder. The watchdog is scheduled to order the fund to meet the requirements through an advance notice, and if the fund failed to meet it, the watchdog would order the fund to sell its stake that exceeds its holding limit," the Financial Services Commission said in an e-mailed statement, reports Xinhua News Agency.

The statement came after Yoo Hoe-won, former head of Lone Star' s local unit was sentenced on Wednesday to three years in jail for violating the nation's securities exchange law. Yoo was indicted by a group of minor shareholders in 2007 on charges of manipulating stock prices of the KEB's card unit in a bid to acquire the unit at cheaper prices.

A Seoul district court ruled against the minor shareholders, but the nation's highest court overturned in March the lower court 's ruling, and reversed earlier acquittals of KEB and LSF-KEB Holdings, Belgium-based unit which holds Lone Star's stake in KEB.

The top court sent the Seoul High Court to retry whether the former head, Lone Star's local unit and KEB violated the securities law. The appeals court on Wednesday handed the jail sentence to the head, and fined LSF-KEB Holding.

The ruling would be finalized if the fund does not appeal to the nation's top court within seven days. Under the country's banking law, banks' major shareholders should not be convicted for a crime over the last five years.

Lone Star was forecast to sell its 51.02 percent stake in the KEB to Hana Financial Group, the country's fourth-largest financial company by assets for 4.41 trillion won or US$3.72 billion.