By all accounts, Steven Lee, an ambitious 30-something, Korean-American Harvard MBA, was a rising star at Texas-based Lone Star Funds. However, few falls in the industry's short history have been as dramatic—or as damagingly influential. Today, Lee is facing charges for tax evasion and abusing dual tax treaties in Korea stemming from alleged tax irregularities in the firm's sale of Korea Exchange Bank—now all the Korean authorities have to do is find him. They are currently trying to extradite Lee, whereabouts uncertain, from the US.
After the Asian currency crisis in the late 1990s, a select number of private equity real estate firms, led by Lone Star, entered Korea in search of distressed properties. Lee was reportedly a key figure in several of the firm's transactions, including its star turn buying Seoul's real estate trophy, the Star Tower. Lone Star acquired the 45-story landmark for 620 billion won ($480 million, €379 million) in 2001; three years later, the firm sold the building to the government of Singapore for 900 billion won, approximately 50 percent more than the original sticker price.
The tax evasion probe prompted street protests in Seoul, with the animosity directed at the Texas-based investment firm and, to a certain extent, all foreign investors. Korean politicians and local media bemoaned the presence of “vulture capital,” while other private equity firms in the country, including The Carlyle Group and Ripplewood, also came under intense scrutiny. Lone Star has refuted the allegations made against it, but has distanced itself from Lee.
Regardless of his guilt or innocence, however, the case may cause serious damage to more than just Lone Star's reputation.
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