Officials cleared in Lone Star bank deal

SEOUL, South Korea — An appeals court on Tuesday cleared two former South Korean officials of charges they helped private equity firm Lone Star buy a shaky local bank on the cheap in 2003, clearing the way for the buyout group to sell the lender.

The court's decision upheld a ruling last year from the Seoul Central District Court that cleared former finance ministry official Byeon Yang-ho and former Korea Exchange Bank chief Lee Kang-won of breach of trust charges. It was alleged they conspired to understate KEB's value.

Dallas-based Lone Star Funds — which in 2006 purchased Wichita's Lone Star Steakhouse & Saloon restaurant company — has long battled allegations that it was able to acquire the bank, which was financially distressed at the time, at a bargain price. The fund took over Korea Exchange Bank, the country's fifth-largest lender, in late 2003 by purchasing a 51 percent stake for about 1.4 trillion won ($1.2 billion).

"If a government official made what he believed to be an appropriate policy decision to rescue an ailing financial institution and enforced it after obtaining internal approval, it is a matter of policy selection and judgment, not a question of breach of trust," the Seoul High Court said Tuesday in its verdict, according to Yonhap news agency.

Calls to the court seeking comments went unanswered.

Prosecutors had contended that Byeon and Lee worked with Lone Star to intentionally understate KEB's assets, thus arranging for the bank to be sold for 825.2 billion won less than its real value.

It was not immediately clear whether prosecutors would appeal the ruling.

Korea Exchange Bank said it had no comment on the ruling. Lone Star could not be immediately reached for comment.

Lone Star has been unable to unload its stake, hampered by various legal and regulatory uncertainties.

South Korea's financial regulator has said that legal cases surrounding Lone Star must be wrapped up before a sale can be approved.

The most recent effort to sell the stake collapsed in September 2008 when British bank HSBC Holdings PLC canceled a purchase agreement, in part citing global financial turmoil. HSBC had contracted in 2007 to buy Lone Star's controlling stake in KEB for about $6 billion.

The fund has consistently denied any wrongdoing related to the purchase of KEB and argued that its rehabilitation of the lender has been good for South Korea's economy.