Verdict: Warburg Pincus Guilty

Warburg Pincus has taken a legal double-whammy in a South Korean court, on charges that it had engaged in insider trading of LG Card shares. Prosecutors had indicted Warburg Pincus managing director Hwang Sung-jin last April, and yesterday a judge sentenced him to four years in prison. The judge also fined Warburg Pincus approximately $57 million.

This represents the first ruling of its kind against a foreign investment fund, with the court saying, in part: “The punishments were necessary, given the need of economic justice and the fact that such activities of creating profit through illegal means should be stopped.”

Warburg Pincus issued a statement saying that it was “disappointed” with the verdict, and that it continues to believe it committed no wrongdoing.
The firm obviously stopped far short of saying that the verdict was politically motivated, but more than a few private equiteers believe that they are being subjected to hyper-scrutiny due to South Korean unease with the influence of foreign investment firms. The public carping began when Newbridge Capital made a $1 billion profit of its sale of Korea First Bank in late 2005, which was soon followed by the Hwang Sung-jin indictment. Warburg’s apparent crime had come a few years earlier, when it sold most of its stake in publicly-traded LG Card just months before the company revealed financial troubles that almost sent it into bankruptcy.