Public Scorn For Private Equity

Lone Star Funds of Dallas is one of the savviest global investors around. Its managers have put more than $13 billion to work in buyouts and other deals around the globe. A big coup: bagging 51% of Korea Exchange Bank, one of South Korea's largest financial institutions, in 2003 for the low price of $1.5 billion. After cleaning out the bad debt and sprucing up customer service, Lone Star and its local partners were ready this year to sell out to Kookmin Bank (KB ) of Korea for an estimated profit of almost $5 billion.

Lone Star, however, did not count on rising Korean wrath over the huge returns foreign private-equity firms have scored by buying and selling local assets. And Lone Star certainly did not count on aggressive prosecutors in Seoul delving into the Korea Exchange Bank deal for possible criminal wrongdoing. On Nov. 20 prosecutors indicted the Belgian company Lone Star set up to take over the Korean bank. The charge: stock price manipulation. On Nov. 16 a Seoul court even issued warrants for the arrest of Lone Star co-founder Ellis Short and Lone Star's general counsel.