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UnitedHealth and Former Exec Will Pay $925 Million in Backdating Lawsuit Settlement

Source: Business Insurance

Posted on 12 Aug 2009

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Yesterday a Minnesota judge approved an agreement for giant health insurer UnitedHealth Group Inc. and former chief executive William McGuire to pay $925 million to settle an investor class-action lawsuit in which the health insurer was accused of improperly backdating stock options.

According to the agreement, UnitedHealth Group Inc., based in Minnetonka, Minnesota, will pay $895 million toward the settlement fund, while McGuire will pay $30 million and former general counsel David Lubben will pay $500,000.

McGuire, who was forced to resign from UnitedHealth in October 2006 after the backdating surfaced, will also relinquish options to buy 3.68 million UnitedHealth shares. In December 2007, McGuire agreed with the SEC to a $468 million settlement that included a $7 million fine and reimbursement of four years of incentive- and equity-based compensation. He did not admit wrongdoing.

Given that there was “significant risk” to the plaintiffs recovering nothing had the case been fully tried, “the $925.5 million settlement amount is substantial,” said Judge James Rosenbaum. The judge had granted preliminary approval for the settlement last year.

The lead plaintiff in the more than 3-year-old case is the California Public Employees' Retirement System, or CalPERS, the nation's argest public pension fund.

Stock options let holders buy shares in the future at fixed prices. Backdating involves the retroactive granting of options on dates when the stock price was low, which can make the awards more valuable. Concealing the practice can inflate a company's earnings.

UnitedHealth is one of more than 200 companies subjected to internal or regulatory probes of backdating since the practice first became widely understood earlier this decade. Judge Rosenbaum also awarded legal fees of about $64.8 million in the case.

A UnitedHealth spokesman said the company welcomed approval of the agreement “and the closure it brings to these matters.”

McGuire said he was pleased with the settlement's approval, and that he now plans to focus on business and philanthropic interests.