Judge finalizes United, shareholder settlement on stock backdating

Former and current executives have agreed to pay millions of dollars back to United stockholders.

By Emily Berry — Posted Aug. 26, 2009

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A U.S. District Court judge in August granted final approval to a settlement between UnitedHealth Group and shareholders who sued in state and federal court claiming they were hurt by the company's stock option backdating.

The same judge in Minneapolis had given preliminary approval to the deal in December 2008. The settlement, combined with the voluntary surrender of stock options by executives in 2006, will cost former executives cash and stock options that were worth an estimated $895 million when first agreed to in December 2007.

That value has shrunk since then with the decline in United's stock price.

The settlement consists of stock options and benefits to be surrendered by former and current executives including former Chair and CEO William McGuire, MD. Some of the stock options counted in the settlement already were surrendered voluntarily when Dr. McGuire and others left the company in 2006.

The givebacks are on top of separate agreements Dr. McGuire and others have reached with shareholders and the Securities and Exchange Commission.

The shareholders, led by the California Public Employees' Retirement System, also sued Dr. McGuire individually, and he settled that case in September 2008 by agreeing to surrender $30 million in cash and 3.675 million shares of United stock.

The shareholder lawsuits stemmed from 2006 investigations suggesting that the company's executives were improperly benefiting from stock option backdating. Backdating occurs when the award date the option is granted is adjusted to another date -- usually the day the company's stock price dipped the lowest during the previous year. Backdating is not illegal, but must be disclosed.

Besides actions from shareholders, the company and executives also have had to answer to regulators over the same allegations. Dr. McGuire settled with the SEC in December 2007, agreeing to pay fines, cash and options worth $468 million.

The SEC settled with United separately in December 2008, declining to fine the company in part because of what it deemed "extraordinary cooperation" with the agency's investigation.

Neither Dr. McGuire or the company have officially admitted to any wrongdoing.

Of the most recent settlement approval, United spokesman Tyler Mason said, "We welcome approval of this agreement and the closure it brings to these matters."

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