United settles SEC backdating investigation

The agency rewards United's cooperation and reforms by issuing no fines against the health plan.

By Bob Cook — Posted Jan. 14, 2009

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Even though it believed UnitedHealth Group concealed more than $1 billion worth of stock-option backdating, the Securities and Exchange Commission is letting the company settle its charges without paying a penny in fines. However, another United executive joins the ranks of those who are reimbursing the SEC over their allegedly ill-gotten gains.

The investigation looked into charges the company awarded stock options with a strike price that was tied to the date of its lowest 52-week share price -- rather than to the price on a specified single date -- and did not tell investors of this arrangement.

The SEC said that practice allowed United executives to have stock options worth far more than they would have been otherwise.

The SEC cited United's "extraordinary cooperation in the commission's investigation, as well as its extensive remedial measures" as reasons the company was not charged with fraud, and why it could settle for nothing on charges it violated the reporting, books and records, and internal controls provisions of the federal securities laws. United did not admit or deny guilt.

United, the SEC said, had recouped nearly $1.8 billion in cash and stock-option value through litigation, annulment of options and other means. The company also shared details of its own backdating investigation with the SEC, the agency said.

United instituted controls to ensure backdating would not occur again, the SEC said. Also, United removed senior executives and board members who were deemed complicit, the agency said.

Most prominent among those was former CEO and Chair William W. McGuire, MD, who settled with the SEC in 2007 for an individual record of $468 million, including a $448 million reimbursement to United. He neither admitted nor denied guilt. Current CEO Stephen Hemsley said he returned $190 million in options he received while he was president and chief operating officer under Dr. McGuire.

Meanwhile, the Dec. 22, 2008, SEC announcement noted another United executive will pay fines to settle backdating-related charges.

Former general counsel David Lubbens agreed to pay more than $2 million to settle fraud charges the SEC brought against him for allegedly creating false or misleading records on stock option dates. Lubbens did not admit nor deny guilt.

Lubbens must repay $1.4 million to United in falsely dated options he exercised, the SEC said. Lubbens also must pay about $800,000 in fines and penalties to the agency. All but a $575,000 fine would be deemed paid by the repricing downward of options Lubbens holds.

Among the other penalties for Lubbens was being barred for five years from serving as a company officer or director. Lubbens also must pay $630,000 toward settling shareholder lawsuits. United is finalizing an $895 million settlement to shareholders related to backdating issues.

United issued a statement following the SEC's announcement: "UnitedHealth Group is pleased to have resolved this matter with the SEC and will continue to focus on serving its customers, growing its businesses, reinforcing its community and customer relationships and helping people live healthier lives. Over the past two years, the company has substantially improved its governance, administrative processes and internal controls, helping it become one of the top-ranked companies in both the health care industry and the [Standard & Poor's] 500 for overall corporate governance."

The SEC settlement is subject to approval by the U.S. District Court in Minneapolis, near United's home base of Minnetonka, Minn.

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