The Financial Supervisory Service is said to have decided on a heavy disciplinary action against MBK Partners in connection with the Homeplus Co. case. This is the first time a heavy penalty has been decided for a general partner (GP) of an institutional-only private equity fund.
According to the securities industry on the 3rd, the Financial Supervisory Service reached a conclusion at the third sanctions review committee held the previous day after discussing a proposed action based on the inspection results of MBK Partners. According to the financial sector, the Financial Supervisory Service maintained the heavy penalty plan, including the pre-notified "partial business suspension."
Under the Financial Investment Services and Capital Markets Act, the levels of sanctions for a general partner (GP) are, in order, ▲institutional caution ▲institutional warning ▲suspension from duties within six months ▲recommendation for dismissal, with suspension from duties being a measure equivalent to "business suspension," which restricts new business for an asset manager. Heavy penalties, including suspension from duties for key executives, are also said to be included.
At the sanctions review, many Commissioners reportedly agreed to maintain the original pre-notified plan, but there was also caution regarding whether illegality could be recognized. Issues appear to include whether giving up the redemption right of redeemable convertible preferred shares (RCPS) harmed investors' interests and whether any third party benefited from it.
The Financial Supervisory Service is said to view MBK Partners as suspected of engaging in unsound business practices and violating internal control obligations under the Financial Investment Services and Capital Markets Act. MBK Partners, through a special purpose company (SPC) established for the acquisition of Homeplus Co., changed the RCPS terms in favor of Homeplus Co. and gave up the redemption right, and in the process, the agency viewed that it infringed on the interests of investors (LPs), including the National Pension Service, by lowering the likelihood of recovering their investment.
The Financial Supervisory Service held two sanctions reviews in Dec. last year and Jan. this year, but the conclusion was delayed due to the time required for legal review over the determination of illegality.
The Financial Supervisory Service plans to compile the results of the sanctions review and recommend them to the Financial Services Commission. The disciplinary plan will be finalized after a resolution by the Financial Services Commission (FSC).