Financial Regulator Slaps MBK Partners with 'Suspension of Duties' Over Homeplus Deal

South Korea's Financial Supervisory Service (FSS) has reportedly decided to impose a significant penalty, including a "suspension of duties," on the private equity firm MBK Partners concerning the Homeplus case. The decision was made during the FSS's third disciplinary committee meeting on June 2, where the review of MBK Partners' inspection results was discussed.

The FSS had previously notified MBK Partners of the proposed disciplinary action, which included a suspension of duties, in November of the previous year. The disciplinary committee meeting process began in early 2024. According to the Capital Markets Act, the disciplinary measures for fund management companies range from institutional warnings to institutional warnings, suspension of duties for up to six months, and demands for dismissal. A suspension of duties is considered a severe measure, akin to a "business suspension" that restricts new business operations for asset management companies.

This marks the first instance of such a severe disciplinary action being taken against an operator of a private equity fund exclusively for institutional investors, such as pension funds, which manage and invest entrusted funds in corporate acquisitions and management participation. The disciplinary action is also understood to include the suspension of duties for key executives.

The FSS reportedly found MBK Partners in violation of unfair business practices and internal control obligations under the Capital Markets Act. Specifically, MBK Partners is accused of altering the terms of Homeplus's redeemable convertible preferred shares (RCPS) in a manner that favored Homeplus. This action allegedly reduced the possibility of the National Pension Service recovering its investment, thereby infringing upon the interests of limited partners (LPs) and violating the fund operator's (GP) duty to comply with business practices.

The FSS will compile the disciplinary committee's findings and submit them to the Financial Services Commission for final approval. The exact details of the disciplinary measures were not disclosed on the day of the meeting.