SEOUL, South Korea (AP) ? South Korean prosecutors indicted US private equity group Lone Star Funds and the Korea Exchange Bank yesterday, stepping up an investigation into the fund?s 2003 acquisition of the Korean lender, Yonhap news agency reported.

The move came after a South Korean court last week issued warrants for two US-based executives of Dallas-based Lone Star on charges of stock price manipulation.

Vice chairman Ellis Short and Michael Thomson, Lone Star?s general counsel, face charges of spreading false information to weaken the stock price of KEB?s credit card unit and then buying it at a discount.

Yesterday, prosecutors brought charges against KEB and LSF-KEB Holdings SCA ? a Brussels-based paper company that Lone Star set up in 2003 to take over the bank ? on the same charges, Yonhap said, citing Chae Dong-wook, a senior prosecutor leading the investigation.

Chae was not immediately available to confirm the report.

Yesterday was the deadline for prosecutors to file charges against the corporations under a three-year statute of limitations, Yonhap said.

Lone Star bought a controlling stake in KEB in 2003 for 1.4 trillion won ($1.5 billion), but prosecutors have been probing the deal over allegations that Lone Star colluded with the former management of KEB and government officials to paint the bank?s financial health as being worse than it actually was in a bid to cut its purchase price.

Prosecutors are also probing allegations that KEB and Lone Star were involved in manipulating the stock price of KEB?s credit card unit in 2003 ahead of the bank?s merger with it.

Lone Star has consistently denied the charges, calling the probe ?politically motivated.?

The fund?s acquisition of KEB has fueled negative views among South Koreans of foreign investment funds, seen as out to make a quick profit by purchasing troubled companies and banks at a discount and then selling the investments for large profits.

In April this year, Lone Star sued its former country head following allegations embezzled $12 million.

Steven Lee, who ran the fund?s operations in Seoul from 1998 until last year, confessed in a signed document, Lone Star founder John Grayken said in April. Lee, 37, is being investigated, and the leveraged-buyout firm may press charges, he said. Lee, who has left Korea wasn?t available to comment and calls to his lawyer went unanswered.

Lone Star filed a civil suit against Lee in the Bermuda Supreme Court, where several of its funds are based. The suit seeks to nullify his financial stake in Lone Star which would keep him from sharing the profits from the $6.6 billion sale of KEB to Kookmin Bank, the nation?s largest lender.

Lawrence Lustberg, Lee?s attorney, told the Wall Street Journal that he and his client had not been summoned to appear in the Bermuda Supreme Court and ?will vigorously contest? any attempt to void Lee?s share of KEB profits.