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Lone Star Funds Gears Up for Financial Arbitration with South Korea

Wednesday, May, 30, 2012

Financial arbitration may be in the future between the Lone Star Funds company and the South Korean government. Relations are still amicable at the moment, but if their disputes are not settled informally, Lone Star will prepare for legal arbitration to settle these issues.

Why Lone Star Seeks Legal Arbitration


According to Lone Star, the company bought a majority stake of EUR 1 billion in Korea National Bank in 2003. Additionally, they had made other investments in South Korean firms from 2001 to 2004. In their claim, they accuse South Korean investment regulators of not being willing to approve several prospective buyers in Lone Star's stakes, which forced them to sit on the investments for too long. This caused the prices of the stakes to drop dramatically. Additionally, Lone Star disputes Seoul's taxation practices of selling these investments.


On one hand, a representative of South Korea's Financial Services Commission (FSC) promised that the regulatory agency would “actively deal with” Lone Star's issue, but has not come up with a specific plan of action yet. However, the FSC has also said that the South Korean government has dealt with Lone Star “fairly and without any discrimination,” and that they have not broken compliance with any laws regarding their dealing with Lone Star.

South Korea's Mixed Message Could Lead to Commercial Arbitration


As late as this year, the FSC allowed Hana Financial Group Inc. to buy 51.02% of the Korean Bank, which opened the door for Lone Star's exit strategy to come into play. Their investment of $3.5 billion may be considered too little, too late. The legal disputes and accusations of stock manipulation and tax evasion has held the investment on ice for nearly 9 years.


Now, with the mixed message of a denial of culpability and a promise to take care of the problem, the Dallas-based funds company is gearing up for financial arbitration. They are still as yet willing to work out their dispute informally, but no one is holding their breath. The arbitration is expected to occur in November of 2012.