Prosecutors Launch Lone Star Probe

Prosecutors have begun an investigation into Lone Star, a U.S. private equity firm, over allegations of tax evasion, illegal foreign currency transfers, and its acquisition of the Korea Exchange Bank (KEB).

The Supreme Public Prosecutor’s Office searched the offices of Lone Star Advisor Korea and its affiliate, Hudson Advisor Korea, yesterday.

Prosecutors also searched the houses of five Lone Star officials, including Lone Star Advisor Korea CEO Yoo Hoe-won and Hudson Advisor Korea CEO Chung Hun-ju, and the archives of Hudson Advisor Korea located in Paju, Gyeonggi Province. It issued an arrest warrant for former Lone Star head Steven Lee, whose Korean name is Lee Jung-hwan, on charges of tax evasion and embezzlement, and will ask U.S. law enforcement authorities to extradite Lee, who holds U.S. citizenship.

Lee is charged with overstating payments to contractors to embezzle billions of won, and evading corporate taxes.

The prosecution decided to impose a travel ban on about 20 Lone Star officials, including foreigners, and will summon them for questioning. Three allegations will be probed by the prosecution, including Lone Star’s purchase of KEB shares at a low price, illegally transferring 8.6 million dollars, and tax evasion amounting to 14.7 billion won. The prosecution will also handle SpecWatch Korea’s accusations against Lone Star, which had been handled by the Seoul Central District Prosecutor’s Office.

The prosecution announced that it would also probe into financial broker Kim Jae-rok’s possible involvement in KEB’s sale to Lone Star.

Ji-Seong Jeon needjung@donga.com verso@donga.com