Report: Korea detains Lone Star chairman

Upon his arrival to testify in a trial regarding portfolio company Korea Exchange Bank, Lone Star chairman John Grayken has reportedly been detained and banned from travel for 10 days.

Korean officials have reportedly detained John Grayken, chairman of Texas-based private equity firm Lone Star Funds, in accordance with an investigation into stock manipulation of portfolio company Korea Exchange Bank.

Grayken arrived in Seoul Wednesday to testify in a related trial today, after which prosecutors intended to detain and question Grayken, according to a Wall Street Journal report. The paper said officials did not indicate how long he would be detained, but that they had imposed a 10-day travel ban.

A Lone Star spokesman declined comment.

Protest: 'Detain John Grayken until Steven Lee
appears to Korean Criminal Court'

Lone Star’s 2003 purchase of the bank has been besieged by accusations that Korea’s Financial Supervisory Commission illegally and improperly approved the transaction. Korea’s Board of Audit and Inspection alleges that a mid-level government bureaucrat together with the former bank president and the bank’s sale advisors conspired to exaggerate the bank’s financial troubles, thus depressing its stock price, prior to its sale to Lone Star. The buyout firm has denied any wrongdoing.

Last August, just as Lone Star seemed set to sell its controversial 51 percent stake in the Korean bank to HSBC, the private equity firm’s Korean office was raided by tax officials who confiscated documents related to the firm’s recent Korean deals. The firm had previously been forced to cancel a $7.3 billion sale of KEB to Kookmin Bank at the end of 2006 as a result of ongoing government investigations.

Lone Star’s troubles with the South Korean authorities have been further complicated by the case of a former Lone Star employee Steven Lee, who fled the country and later admitted to embezzling as much as $12 million from the firm.