Sure this guy may be lugging around some dirty laundry, but to blatantly lambaste him for 11 hours because he’s a foreigner seems a little discriminatory and only sends countless other foreign investors fleeing at the same time.
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49 Comments
I can’t see Korea ever climbing down on this one.
The prosecution didn’t treat Grayken poorly because he’s a foreigner. They treat him poorly because the Korean public prosecution treats everyone poorly.
I wasn’t there, but I’ve been involved in other corporate-crime interrogations at the prosecutors’ office. From my experience John Grayken’s interrogation would have taken longer than expected because of several factors, one of them being the need for interpretation.
Interrogations frequently take a long time. Eleven hours is not an unusual turn in the barrel; we’ve been subjected to grueling, abusive interrogations aplenty, and this was as attorneys for the crime victim.
Also, the questions and answers are typed one at a time into an aged 286 computer running a pirated copy of HWP by a one-fingered typist. Then, because the stakes are so high for Grayken, he and his lawyers would want to review and correct the content of every written statement concurrently (i.e., sentence by sentence, as each question is answered in turn) as well as after the investigation protocol is completed.
Plus, and this is the real tragedy, the prosecution doesn’t comprehend the transactions in question nor do they understand business in general. That would produce a lot of non-sequitur questions. So I can imagine frustration all around the room — triply so for Grayken because he and his firm didn’t do anything wrong, and he may have 18 more days of 12-hour interrogations before him.
…setting Korea back 15 years?
Actually, I was really curious as to how that questioning went. I’d imagine in went something like this:
Prosecutor: So, did you and your company come to Korea with the blatant intention of making money?
Grayken: Uh, yeah.
Prosecutor: So, are you being so shameless as to deny, despite all the evidence before you, that you came to Korea with the naked and boldfaced intention of making money? On a foreign investment?
Grayken: No, I just told you I did.
Prosecutor: Scoundrel!
Make no mistake, Lone Star is guilty of one thing: making too much money in Korea and trying to bring it home.
They bought an ailing KEB when nobody else, Korean or foreign, was willing to buy. Then they (through KEB) bought the way negatively valued turd that was KEB Card, issuers of credit cards to such beacons of creditworthiness as teenagers, for real cash money as a sop to the FSS and “Korean feeling” when it should’ve been taken off life support and died a quiet death. Next, they turn around KEB and make it one of the most attractive banks in Korea, incidentally not just saving, but vastly strengthening, the rabid unionistas’ jobs in the process.
And for this they get continuously shat upon by the flock of seagulls known as the prosecutors and the Korean media. Yes, you might say this is possibly a wee bit damaging to the impression foreign investors may have of this country.
How is the Korean-language Korean media playing this? Surely even Korean media has to feel for this guy, no?
As with the Samsung case, which boils me to no end how a simple open and shut case will drag through the shit at the behest of a farsical political agenda, this is another for the record books. How it’s deemed inconceivable that a broken bank was rejuvanated through foreign intervention is beyond me. Either way, it sends out a damn skewered message to any others wishing to spruce up ailing Korean companies…
Oh yes, the “hub” of Asia. First there’s prostitution, now there’s this. May make them other foreign companies in Korea now a wee bit nervous. No wonder our company’s foreign competitors left in such a hurry this year (there were 2 of them :)).
This is an amazing summation of the whole affair and just how pathetically Korea has behaved herein. The prosecutors have brought shame upon themselves here and Korea with this nonsense.
How did he dare make a profit in Korea! The cheek of him…bad bad man
To be fair, this case involves a substantial element of “face” for the prosecution. They could be putting out their Sunday best — a modern PC running the latest Microsoft Word, with the questions and answers inputted by a one-fingered typist.
Especially now that Korea has invested $2 billion in Citibank.
Although I doubt anyone in this nation of 48 million has drawn the parallel.
Merril Lynch, not Citi.
Ah, right. Citibank is the Arabian bank.
Anyway, the point is the same.
#2,
I would give them a harder time. On the eleventh hour, I’d refuse to accept the validity of the translation and demand that the interpreter be replaced by one who speaks French…Then, I’d provide answers in any one of the several French dialects that I can speak. I know a few that are even unintelligible to most French-Canadians. We’d be at it for weeks.
Don’t get me wrong — the Lone Star case is profoundly shameful and for years to come will be an albatross around the neck (uh oh, here comes pawikirogi) of anyone trying to recommend Korea as an investment destination. Since I’m an FDI lawyer, I say, Thanks so much, fuckers to the outgoing Roh regime. But I’m also a resident of Korea — with Korean companies reducing their investments here, this country will need foreign investment quite urgently to keep its economy going.
Brendon,
You have to realize that we private equity people are a resilient lot. Despite what happens with Lone Star and Grayken, if the clouds clear enough for another go, someone will get into the game. There is just too much capital in private equity right now chasing too few deals for them to ignore a good opportunity. As long as our models show a 50 to 70% internal rate of return, we’re willing to take the risk.
Private equity is but one form of investment. I’m not at all concerned about private equity leaving Korea — even Lone Star will be back. But what about corporate investment? Those guys look at the treatment of other investors and wonder if it could happen to them. It’s the 20% IRR guys who Korea needs. What about business startups?
Jesus, it’s down to 50 to 70% already, is it? That didn’t take long.
But you don’t go to Korea for a 20% IRR. You go to Europe or North America instead. Then again, I see your point. It’s this kind of more mundane investment money, the singles and doubles, that make the bulk of capital put into equity. If Korea only attracts the home run return seekers, then it won’t attract enough capital to fund its growth.
Private equity contains the most risk for unwelcomed litigation because it’s private, or in other words. less transparent then investing in public equities. Unfortunately, being a foreign private equity fund increases this risk in Korea exponentially.
I think that Lee Myoug-bak (of whom I’m not a huge fan) might actually help add some light at the end of this long sh*t-filled tunnel. One story that hasn’t gotten much attention in the English-language press is the FTC investigation into illegal trade practices by pharmaceutical companies – both foreign and domestic.
The initial investigation into 17 companies is complete and the government has already fined 10 of the companies and is expected to make public the results of its investigation into the remaining seven companies within the next month. (The things these companies were found guilty of are pretty much standard practice in the US and Europe.)
So where’s the bright side here? MediPana News, a Korean-language pharma industry trade paper reported yesterday that sources within MOHW and the Blue House decided, after chatting with the presidential transition team, to “postpone” another planned investigation into illegal distribution methods for medical products by drug makers and wholesalers.
Here’s a link to the Korean article: http://tinyurl.com/2p74rz
An unnamed source has a great quote at the end of the article: “The new government’s first priority is restoring the economy and investigations into companies are not in line with this.”
Though I think that companies should be held accountable when they actually do break the law, I can only hope that this is a sign of things to come. Perhaps we can kiss goodbye to random prosecutorial raids.
There really does seem to be no way to climb down — the prosecution has extended the travel ban on John Grayken for an additional 10 days. Awesome.
The proper analogy is probably not one of climbing, but of digging. As in: When you’re in a hole, best thing to do is stop digging. I guess there is no Korean analogue to this Americanism.
Wallstreet journal comment highlights the risk of doing business in Korea or highlights the risk of doing journalism in Korea. Parachuting never did anyone any harm. especially those kind of back packer, flea borrowing, 2 years OS, make my way in the US, pathetic sods. no wonder the US has a pity poor view of the outside world.
David Carr, you summed this up very well. How can a nation that depends on exports for its survival afford to be so xenophobic?
#7: You hit the nail on the head:
“How it’s deemed inconceivable that a broken bank was rejuvanated through foreign intervention is beyond me.”
I believe Koreans are doubly-pissed that both:
1) A foreign company is trying to cash out of the Korean Business Casino with a net profit
2) A foreign company succeeded where Korean ones did not
The end result, however, is quite bad for the Korea Business Casino.
As an aside, I find the foreigner-only Lucky 7 Casino in the foreigner-friendly COEX area to be an ironic metaphor for the popular Korean view of business:
foreigners are for fleecing
The metaphor is further reinforced by the fact that the Casino is failing to attract enough (foreign) capital. Sound familiar ?
Dogbertt, the point is slightly different in that, although Lone Star seems to have made a profit in its investment in KEB, Korea Investment Corp’s investment will most likely take a loss as Meryll Lynch just announced its worst quarter in its 93-year history, a nearly $10 billion loss. Another difference is that KIC will only acquire 3% of the bank as opposed to Lone Star’s complete acquisition of KEB.
But point taken, it is hypocritical for Korea to attempt to make a profit abroad while punishing foreigners who make a profit at home, a policy that will only hurt Korea in the longrun.
KIC is also getting preferred stock with what appears to be a PIK at 9%, which means they will never get the potential return that Lone Star will get from KEB.
After years of being bombarded constantly about 9/11, terrorism, and national security, it’s a bit strange for the average street Joe Schmoe to be hearing about the likes of United Arab Emirates, China, and Prince Alwaleed bin Talal of Saudi Arabia buying sizable chunks of Morgan Stanley, JP Morgan, Merrill Lynch and Citigroup, iconic bastions of American capitalism whose HQs are in close proximity to Ground Zero. Why, only a short year ago, we were hearing about a Dubai-based enterprise being prevented by Congress from taking over port operations in NY and CNOOC from buying an oil company for national security reasons.
Stateside, we’re on the verge of another recession caused by bad mortgages and a boom in foreclosures. Tens of thousands are being laid off while jobs are continuing to be outsourced overseas. The dollar is in depression, oil is a record $100 a barrel. The interest alone on the debt incurred by the Bush Administration is equivalent to the cost of two Iraq Wars a year indefinitely. While you guys are sitting here bitching about some weasel-looking bastard who doesn’t give two iotas about none of y’all, I’m here on the deck of the USS Titanic.
None makes sense anymore to the rank-and-file working stiff. But I’m sure things are perfectly clear to the top 1% who benefitted from Bush’s tax cuts.
Non sequitur.
Non sequitur.
Whether the shit hit the fan because of the Asian IMF disaster or the current sub-prime mortgage crisis in the US, money has a funny way of making people not care whether you’re foreign or not. Because, quite frankly, beggars can’t be choosers, right?
But things also have a lot to do with which way that money is flowing. If, say, a year or two from now, Prince Alwaleed bin Talal of Saudi Arabia rakes in a hefty, enviable profit from his investment in Citigroup, do you think certain Americans are just going to be sitting idly by and just watch that happen? I really don’t think so.
Stop being naive. There’s no such thing as fairness in business. If you go into any nation like an opportunistic bandit and make them feel like suckers they’re gonna react. The US proved this for many years in dealing with the Japanese. That’s just human nature.
“Stop being naive. There’s no such thing as fairness in business.”
This is precisely the message Korea Inc needs to heed, as evidenced by the handling of the Lone Star case.
“If, say, a year or two from now, Prince Alwaleed bin Talal of Saudi Arabia rakes in a hefty, enviable profit from his investment in Citigroup, do you think certain Americans are just going to be sitting idly by and just watch that happen? I really don’t think so.”
By definition, if the Prince profits on his investment, anyone with a concern in Citicorp will be profiting, too. So, no, unlike Mr Grayken, he won’t be dragged before authorities or pilloried in the press.
Americans have been able to suppress their righteous anger over Prince Alwaleed bin Talal’s holdings in Citigroup for 17 years thus far; I think they’ll manage. And he’s made a lot off Citi — in 1991 he invested $590 million, and turned that into $10 billion (almost a 20-bagger!).
# 28,
“I’m sure things are perfectly clear to the top 1% who benefitted from Bush’s tax cuts.”
Have you sold stocks or any other long term investments within the past two years? If yes, then you have benefitted from the Bush tax cuts. That would mean that way over 1% of the U.S. population has been affected.
If we look at a tax cut as a gift, then the following fable applies:
A stranger rolls into town and starts handing out money. He gives every poor person $1, he gives every middle class person $5 and he gives every rich person $1,000. He does this every day for a year.
The poor people have spent their $365 in drips and drabs on basic consumption. The middle class with an extra $2k have consumed some, saved some to the 401K. The rich folks have bought new cars, nice clothes, great vacations, excellent health care, walled communities and improved educations for their kids. The lower classes complain on blogs and radio call-in shows.
A rich pundit tells them they should be happy. I mean, they’re $365 better off than they were last year, right?
Actually, I would expect that is exactly what would happen. As an investor (though not in Citigroup), I welcome the rising tide of profit and do not complain when others’ boats are raised as well. It doesn’t matter if others profit more than me in absolute terms on a specific investment. What matters is that I stay focused on my investment strategy, and continue to increase my personal wealth relative to my goals.
And, if I didn’t invest? Well, as they say, what do I really have to bitch about?
# 34,
I love a system that creates an incentive to be rich and a disincentive to be poor.
An inverse would be… communism.
Me, too, but the chances of someone moving between income quintiles in the US now is less than at any time since the early 20th century. I don’t need to google it, you’ve seen the same info, I’m sure. The $365 is a good thing, it’s the proportionality that rankles.
gbnhj, that the difference between public sentiments. Americans don’t see Citi’s market cap as their personal “national wealth”. Koreans look at all foreign profit taking, even simple dividends, as a loss of their national wealth.
Well said.
You really got spanked on that one.
Read again what Brendon wrote.
Your analysis is faulty.
One, KEB at that time was a failing bank, just as Merill Lynch is now not doing well. That is the time to buy, in expectation that the bank will recover and you will have made a profit. Explain to me please how you think KIC will take a loss — it’s not a day trader here.
Two, Lone Star did not completely acquire KEB.
As an aside, it was reported in the Korean press (or the “vernacular press”, as the Korea Times and Korea Herald like to call it), that newly-appointed ML CFO Nelson Chai, a Korean American, played a key role in arranging KIC’s investment.
Don’t be surprised if these stubborn idiots go ahead and indict Grayken at the end of the 20 days of interrogations. They cannot be proven wrong. Hwaiting!
Perhaps Linkd may be a Hillary voter. A tax cut is not a gift.
Well, I wasn’t trying to encompass public policy agendas in my little fable. But the bottom-line effect on personal finances is the same: individuals have more to spend, save or invest.
My mind is divided on this.
On the one hand, John Grayken is enduring an injustice at the hands of Nosangmo prosecutor dimwits. I hope this is over for him soon.
The other (Schadenfreude) half of me hopes this thing drags on and eventually turns the rest of the world off from investing here. Then things might get cheap again and the koreans can reap the whirlwind from what they’ve sown.
Will Korea learn anything in the end either way? IMHO, not a chance!
Dogbertt, keep in mind shares of KEB may have been deliberately underestimated to facilitate Lone Star’s purchase of the bank.
Also, Lone Star, still after selling much of its holdings in KEB, has an over 50% controlling stake in KEB. Slightly different from Korea Investment Corp’s 3% holding in Merrill Lynch.
As an aside, the CFO also played a key role in selling a slightly larger stake in Merrill Lynch to Kuwait, and also to… gulp… Japan!
Lone Star initially purchased 50.5% of KEB — a controlling interest, but far from a complete acquisition. It did later gain (and then sell) an additional stake taking its ownership to ~64% for a period.
I’d still like to know why you think KIC will lose money on its investment in ML.
Dogbertt, since you acknowledge that Lone Star has a controlling stake in KEB, unlike KIC’s 3% stake in Merrill Lynch, I suppose you agree that the parallel you made between the two is pretty ridiculous.
By the way, as you know, all investors expect to make a profit, and KIC is no exception. But KIC is paying a risk premium by investing in a company that took its worst loss ever, that in the middle of this current environment of global economic slowdown. Also, KIC’s stake is like I just mentioned at only 3% of ML - So even if a miracle does happen, KIC isn’t going to come close to earning the profits reported by Lone Star.
Scrapping this whole dodgy and costly investigation would be a great downpayment from LMB on this new Korea he’s promising to deliver.
sorry, I couldn’t pass this one up.
please refer to this liberal American’s comic.
and do some self reflection.
http://news.yahoo.com/comics/u.....tt20080118
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