dulouz
Joined: 04 Feb 2003
Location: Uranus
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 Posted: Fri Jul 07, 2006 1:36 am Post subject: Lone Star KIB Scandal |
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There is a business "scandal" going on now here in Korea. Seems a foreign bank bought I believe KIB via some manner of corporate raiding. They bought the bank and did a few things and made a bunch of cash quickly then split. The gov't lawyers then descended on the bank officers like locusts but could not really nail them for anything much to the disdain of Korea's citizenry.
Finance has a big MEGO aspect to it but one editorial I read had the author calling Korea's behavior on the matter "unmanly" so I had to read further.
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SEOUL, South Korea � South Korean authorities are continuing a high-profile investigation into Lone Star, the Dallas-based private-equity fund, fueling a public backlash against excessive profits made by foreign investment funds.
Just eight years ago, Lone Star was hailed as a savior, pouring money into companies crippled by South Korea's financial crisis. Today, it appears to be in danger of being run out of town in a flap that could threaten Seoul's attractiveness to foreign investors.
South Korea is investigating Lone Star for possible wrongdoing involving its takeover of Korea Exchange Bank. Lone Star's plan to sell the bank, earning a windfall profit of $4.4 billion, has provoked a public outcry, along with its attempts to avoid Korean taxes.
A separate investigation into allegations of embezzlement and bribery resulted in a raid on Lone Star's Seoul offices and the arrest of three businessmen linked to the fund.
Lone Star's troubles sit at the center of a growing uproar over the huge and often tax-free profits earned by foreign hedge funds and other investment funds, which like Lone Star are now cashing out of lucrative investments made here during and after the financial crisis. Most experts, however, describe the outcry as just growing pains of this country's rapid transformation into one of Asia's most open economies.
"Lone Star was a shock to the system," said Kim Joon Gi, a professor of law at Yonsei University in Seoul. "Koreans were suddenly asking: How on earth could they make such a killing, and then not pay taxes? And to make it worse, they're foreigners."
Behind the uproar is also a sense among many Koreans that foreign investors were given unfairly generous terms after the 1998 financial crisis. They point in particular to the attempts by Lone Star to shelter its profit, the largest ever on a single deal by a foreign investor, from Korean taxes by using international treaties originally designed to prevent double taxation of companies doing business overseas.
[On June 19, government auditors cleared Lone Star of wrongdoing in its 2003 purchase of Korea Exchange Bank, but prosecutors are still investigating, and tax authorities are examining whether they can tax the fund's earnings. And on Friday, a former executive of Korea Exchange Bank received a one-year prison sentence for bribery.]
While Lone Star has received the most attention, other funds have also come under intense scrutiny.
In April, prosecutors indicted the local head of the United States private equity firm Warburg Pincus on insider trading charges stemming from the 2003 purchase of LG Card, a credit card company. Newbridge Capital, another American investment fund, was investigated last year by tax authorities after avoiding taxes on its $1.2 billion in profit from the sale of Korea First Bank.
The American private equity firm Carlyle Group was criticized for not paying taxes on its $740 million profit from the sale of KorAm Bank two years ago. More recently, Carl C. Icahn and another United States investment fund, Steel Partners II, have drawn criticism for trying to take over KT&G, a former state-owned tobacco company.
Some politicians and newspaper editorials have chimed in, calling these investors "vulture funds." Tax officials have announced a sweeping inspection of 6,100 foreign-invested companies and foreign corporate offices in South Korea. In April, South Korea's president, Roh Moo Hyun, even weighed in, saying that deregulation had exposed the country to foreign takeovers.
South Korea is not alone in criticizing investment funds, as the United States Congress has also looked into regulating the hedge fund industry. But South Korea's outrage has been severe, partly due to a deep-seated distaste for excessive profits. The size and intensity of the fury has raised alarms among some overseas investors that a broader nationalist backlash could threaten one of Asia's most dynamic success stories, and the government's proclaimed dream of turning Seoul into a regional financial hub similar to Hong Kong.
A few analysts have also expressed concern that the flap could even escalate into a political dispute between Seoul and Washington, just as they have begun negotiations for a bilateral free trade agreement.
Lone Star's founder and managing partner, John Grayken, summed up the bitterness of some investors in a press conference last month in New York � a rare airing of grievances by one of the normally secretive investment funds.
"The hostile antiforeign investor climate has created great uncertainty for us as investors in Korea," Mr. Grayken told reporters. "It is difficult to manage Lone Star's other investments and determine our future investment policy there."
But most economists, investors and government officials say South Korea is far from closing the doors to its vibrant economy, the world's 10th-largest according to the International Monetary Fund.
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http://www.nytimes.com/2006/07/05/business/worldbusiness/05star.html?pagewanted=2&_r=1 |
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