The Financial Supervisory Service sanctions review committee reached a deliberation conclusion recommending heavy disciplinary action, including suspension from duty, against private equity fund (PEF) manager MBK Partners in connection with the Homeplus Co. case. MBK said it would continue to explain its position in subsequent procedures.
MBK said in a statement on the 3rd, "It is reported that the FSS sanctions review committee reached a deliberation conclusion recommending heavy disciplinary measures," and added, "We regret that our position does not appear to have been sufficiently accepted, as reported."
MBK argued that changing the terms of the Homeplus Co. redeemable convertible preferred shares (RCPS) was not unlawful. The company said, "The RCPS term change was a reasonable management decision to protect investor interests by improving Homeplus Co.'s financial structure and preserving corporate value at the time," and added, "The RCPS invested in by the National Pension Service and the Homeplus Co. RCPS with changed terms are different securities."
It added, "We will diligently present our position through the relevant legal procedures in the Financial Services Commission's future review and resolution process."
The FSS on the 2nd reached a conclusion at the 14th sanctions review committee to recommend heavy disciplinary action based on findings from its inspection of MBK concerning unsound business practices. This is the first time for a general partner (GP) of an institution-only private fund. The level of sanctions was not disclosed, but a suspension from duty for key executives was reportedly included. Under the Financial Investment Services and Capital Markets Act, GP sanctions escalate in the order of institutional caution, institutional warning, suspension from duty of up to six months, and dismissal recommendation.
The FSS is said to have determined that MBK, through a special purpose company (SPC) set up to acquire Homeplus Co., changed the RCPS terms in favor of Homeplus Co. and, in the process of waiving the redemption right, infringed on the interests of limited partners (LPs) such as the National Pension Service by reducing the possibility of recovering their investment.
The FSS plans to compile the results of this sanctions review and recommend them to the Financial Services Commission. The disciplinary plan will be finalized after a Financial Services Commission resolution. If heavy disciplinary action is confirmed, it is expected to affect delegated investment management contracts with entities such as the National Pension Service.