Lone Star (Image courtesy of Yonhap)
SEOUL, Nov. 18 (Korea Bizwire) — South Korea has secured a decisive victory in its protracted legal war with Lone Star Funds, closing a contentious chapter that has shaped the country’s financial and political landscape for more than two decades.
The U.S. private equity firm—long criticized in Korea as a predatory “vulture fund”—first entered the market in 2003 when it acquired a 51 percent stake in Korea Exchange Bank (KEB) for 1.38 trillion won during the aftermath of the IMF crisis.
Allegations soon followed that Lone Star had been improperly allowed to buy the bank despite holding industrial assets, which should have disqualified it under Korea’s banking laws.
By the mid-2000s, civic groups accused regulators of approving the sale at an artificially low valuation. Prosecutors and the state audit agency launched investigations, while Lone Star attempted to resell KEB—first to HSBC in 2007 for nearly 6 trillion won.
The deal collapsed after government approval stalled amid ongoing legal disputes, and Lone Star ultimately sold the bank to Hana Financial Group in 2012 for a significantly lower price.
The labor union of Korea Exchange Bank Credit Service went on a general strike on Jan. 13, 2004, in protest of the company’s large-scale restructuring plan. (Photo courtesy of Yonhap)
Later that year, the fund launched an investor-state dispute (ISDS) claim against the Korean government at the World Bank’s International Centre for Settlement of Investment Disputes (ICSID), alleging that officials had intentionally delayed approval of the HSBC sale and caused billions in losses. The firm demanded US$4.67 billion in compensation—about 6.8 trillion won.
What followed was one of the longest arbitration battles in ICSID’s history: 3,508 days of proceedings, spanning thousands of pages of submissions, nearly 100 witness and expert statements, and hearings in Washington and The Hague. Seoul rejected an informal settlement offer floated by Lone Star in 2020.
In 2022, ICSID ruled that Korea should pay roughly US$216 million—less than 5 percent of what Lone Star sought. Both sides filed for an annulment: Lone Star arguing the award was too small, and the Korean government arguing the tribunal had overstepped its authority.
Justice Minister Jeong Seong-ho delivers an emergency briefing on Nov. 18 at the Government Complex Seoul regarding the petition to annul the Lone Star investor-state dispute (ISDS) ruling. (Yonhap)
On Tuesday, ICSID denied Lone Star’s annulment request and granted Korea’s, effectively nullifying the compensation order. The result: Korea pays nothing.
Justice Minister Jung Sung-ho praised government lawyers and civil servants who worked through last year’s political turmoil—after the December 3rd upheaval that left the presidency and justice ministry temporarily leaderless—to push the case across the finish line.
The ministry plans to release a detailed explanation of the 120-page decision later this week, outlining the tribunal’s reasoning and the implications for future investment disputes.
With the case closed, Seoul ends a 20-year saga that reshaped public attitudes toward foreign capital, tested the country’s regulatory institutions, and cost the government more than a decade of legal and political strain—ultimately emerging with what officials called “the best possible outcome: zero won.”
Jerry M. Kim (jerry_kim@koreabizwire.com)
