A former Seoul branch chief of Lone Star accused of illegalities during the U.S. equity fund's acquisition of a local bank in 2003 was arrested in the U.S. some 17 years after the South Korean government sought his extradition.

According to the justice ministry on Sunday, Korean American Steven Lee, whose Korean name is Lee Jeong-hwan, was arrested in the U.S. state of New Jersey last Thursday with the cooperation of local authorities.

Lee, who headed Lone Star's Seoul office between 1998 and 2005, is alleged to have played an important role in the firm's purchase of Korea Exchange Bank(KEB) at a below-market price before reaping a hefty profit from a 2012 sale to Hana Financial Group.

Prosecutors suspect that Lee was involved in the manipulation of financial records while collaborating with South Korean government officials and influential financial figures in the acquisition and sale of KEB.

The prosecution launched an investigation into Lee in 2006, but he had fled to the U.S. the previous year, prompting the agency to request his extradition.

Lee also faces separate charges of embezzlement and tax evasion.