"CASA BLANCA, KOREAN STYLE"... WITCH HUNT GOES ON AND ON AND ON

Thomson's Jerry Borrell on the witch hunt that continues:

The “Claude Raines Memorial Award” goes to government auditors in Korea who announced this week that they are “shocked, shocked” to find out that there were alleged “irregularities” in the sale of the Korean Exchange Bank to Lone Star Funds in 2003. The Korean government can't seem to recall that it sold the once-failing banking system to Lone Star to save it from collapse. More than twice the usual number of suspects are being rounded up, reportedly some 20-plus officials associated with the original sale have been “summoned” to testify to prosecutors.

We reported just last week that Lone Star had completed a $6.7 billion sale of the bank to Korea's Kookmin Bank, just weeks before the Korean legislature was to enact legislation that would have allowed the tax-free deal to be taxed. That sale is apparently still on track, but Lone Star's ability to expatriate funds from the sale may be in question.

Separately, Korean government prosecutors not only raided the offices of Lone Star in Seoul, but the homes of executives of the firm, as well as the offices and homes of Lone Star's affiliated advisors in Korea.

In related news—and in conflict with our earlier report that Korea would unify of its diverse investigations and prosecutions of Lone Star within the Supreme Prosecutors Office—Korea's Board of Audit and Inspection is expanding its investigation of the 2003 sale.

And in yet another related story, Korea's Financial Supervisory Service (FSS) has promulgated a new regulation that will allow it to “gather information” and monitor foreign-based investors in Korea more closely beginning in June. Specifically, the new rules allow regulators access to information about investments made by foreigners in Korea. The regulations also allow for information sharing with financial regulators in the United States, Hong Kong, Singapore and other countries. The new rules will allow access to “personal” information on investors or “anyone related to … deals” made in Korea. The FSS has also promised to increase its surveillance on persons it suspects of wrongdoing. Given the current state of affairs with teams of men rummaging through the homes of people working for foreign investment firms in this country, we suspect the only additional options available involve body cavity searches.