We say “backdating,” you say “historical stock options practices.” Let’s call the whole thing off.
UnitedHealth Group, one of the largest companies to be ensnared in
the backdating scandal, announced a settlement today with California
Public Employees’ Retirement System (or CalPERS, for all of you
well-versed in public-pension lingo) and plaintiff class rep Alaska
Plumbing and Pipefitting Industry Pension Trust. According to the press release,
UnitedHealth, based in Minnetonka, Minn., will pay a whopping $895
million to settle the federal securities class action — filed in 2006 —
“relating to its historical stock options practices.” Here’s the early WSJ report.
That’s the largest backdating shareholder class-action settlement to
date, and dwarfs the next-largest, Brocade, last month at $160 million.
(See prior LB coverage here.) Plaintiffs lawyers: Coughlin Stoia.
“The settlement provides UnitedHealth Group with certainty and
closure on this lawsuit, avoids potentially costly and protracted
litigation and allows us to continue to focus on providing Americans
with high-quality, affordable health care solutions,” said Thomas L.
Strickland, UnitedHealth’s top legal beagle.
Last December, former UnitedHealth CEO, Dr. William McGuire, agreed
to forfeit about $420 million in stock-option gains and retirement pay
to settle shareholder and federal government claims related to
stock-option backdating, though the give-back was unrelated to the
shareholder suit. In addition to the $530 million McGuire made in
compensation while running UnitedHealth, he was allowed to keep stock
options valued at more than $800 million.
www.sacbee.com
CalPERS to collect in stock-option settlement
By Jon Ortiz -
jortiz@sacbee.com
Published 12:00 am PDT Thursday, July 3, 2008
Story appeared in BUSINESS section, Page D4
Sure, the money's nice, but Wednesday's class action settlement
between the California Public Employees' Retirement System and
UnitedHealth Group Inc. did more than put a record $895 million dent in
the wallet of the nation's No. 2 health insurer.
It sent a message to other publicly held companies: Don't mess with the numbers.
CalPERS
and the Alaska Plumbing and Pipefitting Industry Pension Trust were the
lead plaintiffs in the lawsuit alleging that UnitedHealth manipulated
executive stock options to inflate their value.
CalPERS claimed it lost millions on its investments in the company's
stock because of the manipulations. Fund officials on Wednesday didn't
know how much money CalPERS will get from the settlement.
But
beyond the eventual payout, Minneapolis-based UnitedHealth agreed to
several key changes to how it runs its business. Experts say that those
changes burnish CalPERS' image as a crusader for better corporate
governance, the nuts-and-bolts of how public companies fulfill their
duties to investors and other stakeholders.
"In a sense, CalPERS
is acting like an attorney general for its members and this is a
warning shot to other companies that engaged in this behavior or are
inclined to," said Carl Tobias, a University of Richmond, Virginia, law
professor who follows class action suits. "People who rely on CalPERS
need to understand that it has acted very aggressively here to protect
their interests."
Stock options give recipients rights to buy
company shares at a set price, usually the closing share price on the
date a grant is made. Backdating shifts the price-setting date back to
a stock's lower point, creating an instant windfall for the buyer.
Dozens
of backdating scandals have triggered civil and criminal
investigations, compelled more than 80 financial restatements and
forced out dozens of executives. Former UnitedHealth CEO Bill McGuire
stepped down last year after he allegedly amassed $1.6 billion in
backdated stock options.
The practice, CalPERS claimed, cost it
up to $22 million on its investments in UnitedHealth stock – about 6.7
million shares worth about $322 million at the time. The fund now holds
4.9 million UnitedHealth shares valued at about $127 million.
The
agreement doesn't require UnitedHealth, with $75.5 billion in revenue
last year, to admit wrongdoing. The terms add new company governance
rules, including a shareowner-nominated director to its board, enhanced
standards for director independence and shareholder power to approve
stock option repricing. Executive pay incentives will factor in
UnitedHealth's performance compared with that of similar insurers.
CalPERS general counsel Peter Mixon called the reforms "a major step forward" in its campaign to hold directors accountable.
Thomas
Strickland, UnitedHealth's chief legal officer, said the settlement
"resolves a major issue before our company" during a difficult time for
the business. On Wednesday it slashed its annual earnings outlook and
said it would cut 4,000 jobs because of tough competition in the
industry.
UnitedHealth's payout will dwarf the settlements
reached in 11 similar class action lawsuits so far. Those agreements
have totaled $418 million, according to RiskMetrics Group, a New York
City-based firm that tracks securities class action lawsuits. The
average settlement has been $38 million.
"It's a very substantial
amount of money," said Tobias, the law professor. "It seems clear that
there was backdating going on. That's why people settle cases."
Ramzi
Abadou, CalPERS' lead attorney, said the fund's piece of the settlement
will be based on the number of UnitedHealth shares it owned during the
period cited in the litigation, Jan. 20, 2005, through May 17, 2006.
"I
can't comment on the exact amount, but the formula is the same for all
the shareholders," said Abadou, who works in the San Diego offices of
Coughlin Stoia Geller Rudman & Robbins LLP. The amount of money
paid to each shareholder will depend on how many make a claim to the
settlement.
The deal won't be final until the CalPERS board of
administration, the UnitedHealth Group board of directors and the U.S.
District Court in Minnesota approve it. The terms cover all parties
except former CEO McGuire and UnitedHealth's former general counsel,
David Lubben, who remain defendants in the class action.
CalPERS,
the nation's largest public pension fund with about $235 billion in
assets, provides retirement and health benefits to approximately 1.5
million public employees, retirees and their families.