Former UnitedHealth CEO settles options lawsuit

UnitedHealth Group CEO Bill McGuire
Bill McGuire, former CEO of UnitedHealth Group.
MPR Photo/Jeff Horwich

UnitedHealth Group's former chief executive is agreeing to pay $30 million and give up millions of stock options in yet another settlement related to a stock options backdating scandal. So far, there have been three separate settlements involving the Minnetonka-based health insurer, its former CEO Bill McGuire and groups of shareholders.

The latest deal settles a class action lawsuit brought by the California Public Employees' Retirement System or CalPERS. Bill McGuire will pay $30 million into a fund benefiting CalPERS members and he'll give up about 3.7 million stock options. A spokesman for McGuire said the parties have not yet determined how to value those options.

CalPERS spokeswoman Pat Macht said McGuire's payment is a fair if hefty penalty.

We think that 30 million dollars is a good result," Macht said. "This is a case that certainly could've gone to a trial, and we made a decision that this amount of money was a good result for CalPERS and the class of share owners that were harmed by this."

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McGuire stepped down from the top job at UnitedHealth in 2006. An internal report found that he had likely used the benefit of hindsight to select the effective date and price of some of his stock options. Backdating in that way could lower the eventual cost of acquiring the stock and therefore make the option more profitable.

UnitedHealth former general counsel David Lubben was also fingered in the internal report. He's agreeing to pay $500,000 as part of the CalPers settlement.

McGuire has denied any wrongdoing in the stock options scandal. In a statement, he said: "As CEO, I consistently took responsibility to help address important issues facing UnitedHealth Group, and I have continued to do my part to resolve stock option dating issues since leaving the company."

A spokesman for UnitedHealth declined to comment on the latest deal.

This is the second "pound of flesh" CalPERS has extracted from UnitedHealth's approach to stock options. In July, UnitedHealth agreed to pay CalPERS nearly $900 million in a related suit. The deal also required changes to UnitedHealth's corporate governance. The company had already implemented many changes in the wake of the scandal.

CalPERS' Pat Macht said other corporations should take heed of the penalties paid.

"We hope that it has an effect on corporations going forward who are unsure about how far to take their executive compensation in a way that doesn't sit well with principled corporate governance," Macht said. "This is I think a really dead issue for the investment community."

Portfolio manager David Heupel, of Thrivent Asset Management, said as far as investors go, these settlements are old news at this point.

"The issue has been addressed, dealt with, the financial consequences have for the most part been taken care of," Heupel said.

The company's stock is down about 50 percent from the beginning of the year, but Heupel said that's due to difficult business conditions. He said managed care companies are having a hard time this year, and UnitedHealth is not alone.

Heupel said getting past the settlements will allow UnitedHealth to move on.

"We're down to the last dribs and drabs of what has been a pretty long saga," Heupel said.

But the saga isn't quite over yet. All the settlements still require approval by federal Judge James Rosenbaum, who has raised questions about one of them.