SEC takes closer look at United's stock-option grants

The agency is studying United HealthGroup's practice of backdating options to maximize executive pay. Meanwhile, the company spells out how much backdating will cost it.

By Bob Cook, AMNews staff. Jan. 15, 2007.

United HealthGroup has revealed that the Securities and Exchange Commission is stepping up its investigation into the health plan's past options grants to top executives.

In an SEC filing on Dec. 26, 2006, United said it had "received from the SEC staff a formal order of investigation" on Dec. 19. That represents a step up from the informal investigation the company launched in April 2006 into the company's backdating of stock options to top executives.

The difference between a formal and informal SEC investigation is that the former gives the SEC subpoena power, while the latter is a preliminary look that does not require witnesses to issue sworn statements or be forced to testify. If after the formal investigation the SEC believes it has a case against United, the agency can bring the case to an administrative law judge, the Justice Dept. (if criminal activity is alleged) or both.

United has acknowledged that it engaged in backdating stock options, though it says it does not engage in the practice anymore. In a Dec. 19, 2006, presentation to investors, the Minnetonka, Minn.-based company said it might have to adjust earnings between 1994 and 2005 downward by up to $1.7 billion because of backdating to executives. The beneficiaries include former CEO and Chair William McGuire, MD, who resigned as of Dec. 1 as criticism mounted over how he was able to amass $1.8 billion in stock options.

Dr. McGuire said upon his departure that he would return $200 million in stock options already exercised that were linked to backdating, based on a company investigation. Dr. McGuire's successor as CEO, Stephen Helmsley, said he would return $190 million in unrealized and realized gains.