Judge Denies Motion To Dismiss UnitedHealth Suit

U.S. District Judge James Rosenbaum on Monday denied a motion by UnitedHealth Group to dismiss a shareholder class-action lawsuit led by CalPERS alleging that the company made a practice of issuing backdated stock options, the St. Paul Pioneer Press reports (Forster, St. Paul Pioneer Press, 6/4).

In October 2006, then-UnitedHealth CEO William McGuire agreed to resign after the release of a report that found he likely received backdated stock options.

The report, part of an internal investigation conducted by the law firm Wilmer Cutler Pickering Hale & Dorr at the request of the UnitedHealth board, found that 1.5 million stock options, most of which McGuire received from his 1999 contract, were "likely backdated."

In November 2006, McGuire and then-company Chief Operating Officer Stephen Hemsley agreed to return about $390 million in stock option compensation. Hemsley replaced McGuire as CEO (California Healthline, 6/1).

UnitedHealth sought to have the lawsuit dismissed on the grounds that it did not show that UnitedHealth improperly accounted for its stock options or that its public statements mislead investors.

Rosenbaum in his order wrote that CalPERS is claiming that UnitedHealth and its executives "were playing a game with a stacked deck. When awarded options, with deliberately selected grant dates which were already in the money, defendants were playing a game they knew they could not lose; and, unsurprisingly, defendants won." Rosenbaum wrote, "If the plaintiffs are correct, this case is incredibly simple" (AP/Houston Chronicle, 6/4).

UnitedHealth spokesperson Don Nathan said that the plaintiffs would have problems proving damages because the "company's share price gained in value during the period they claimed they were harmed" (St. Paul Pioneer Press, 6/4).