[The Economist, Reporter Lee Yong-woo] It has been reported that the Financial Supervisory Service (FSS) has decided to impose severe disciplinary measures, including a “suspension of business,” on MBK Partners in connection with the Homeplus scandal. If the disciplinary action is finalized following a resolution by the Financial Services Commission (FSC), it is expected to be the first instance of severe disciplinary action against an institutional-only private equity fund.

In response, MBK Partners stated that it will diligently present its case regarding the relevant issues through the FSC’s deliberations and future legal proceedings.

According to the financial investment industry on the 3rd, the Financial Supervisory Service (FSS) reportedly concluded at its third Sanctions Deliberation Committee meeting held the previous day—after reviewing the proposed measures based on the inspection results of MBK Partners—that it would maintain the severe disciplinary measures it had previously notified the firm of. Previously, the FSS had notified MBK Partners in advance of severe disciplinary measures, including a “suspension of duties.”

Under the Capital Markets Act, sanctions against private equity fund managers are ranked in order of severity as follows: institutional caution, institutional warning, suspension of duties for up to six months, and demand for dismissal. A suspension of duties constitutes a severe sanction equivalent to a business suspension, which restricts new business operations for asset management firms. It is reported that this measure also includes severe sanctions against key executives.

During the sanctions hearing, while a majority of committee members agreed to uphold the original proposal as previously notified, some reportedly raised the need for careful review regarding whether the actions constituted a violation of the law.

The key issue is whether MBK Partners, by amending the terms of the Redeemable Convertible Preferred Shares (RCPS) in favor of Homeplus through a special purpose company (SPC) established for the Homeplus acquisition—and thereby waiving its redemption rights—reduced the likelihood that limited partners (LPs), including the National Pension Service, would recover their investments, thereby infringing on investor interests.

It is reported that the Financial Supervisory Service (FSS) determined that MBK Partners violated the Capital Markets Act by engaging in improper business practices and failing to fulfill its internal control obligations during this process.

In contrast, MBK Partners issued a statement refuting the FSS’s determination.

On the 3rd, MBK Partners stated, “We have thoroughly explained that the issues raised thus far—particularly the amendment to the terms of the Homeplus RCPS—were reasonable management decisions made to protect investor interests by improving Homeplus’s financial structure and preserving its corporate value at the time.”

The firm also stated, “The RCPS in which the National Pension Service invested and the Homeplus RCPS with amended terms are distinct securities,” adding, “Nevertheless, we find it regrettable that reports suggest our position has not been fully accepted.”

The company further emphasized, “The details of the sanctions are not finalized based solely on the deliberations of the FSS Sanctions Deliberation Committee; the Financial Services Commission’s deliberation and resolution procedures remain,” adding, “We will continue to faithfully explain our position on the relevant issues through the appropriate legal procedures.”

Going forward, the FSS will submit the results of the Sanctions Deliberation Committee to the Financial Services Commission, and the final decision on sanctions will be determined following the FSC’s resolution. The financial investment industry believes that if severe sanctions are confirmed, they will have a significant impact not only on MBK Partners’ future business but also on investments by major institutional investors such as the National Pension Service.

Meanwhile, the 4th Reorganization Division of the Seoul Reorganization Court ruled to terminate the corporate reorganization proceedings for Homeplus, citing that the restructuring and merger and acquisition (M&A) efforts it had pursued failed to yield results and that the company was unable to secure the 2000억 won in operating funds required for its reorganization plan.

With the court’s decision, it has become increasingly likely that Homeplus will enter liquidation proceedings.

However, if Homeplus secures the necessary funds and files an immediate appeal within 14 days, the rehabilitation court may revoke this decision to terminate the proceedings and set a date for a creditors’ meeting to discuss a new rehabilitation plan.

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