Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Friday, December 7, 2007

Former UnitedHealth Group CEO Settles Backdating Charges

The SEC announced a record $468 million settled enforcement action in an options backdating case against William W. McGuire, M.D., the former Chief Executive Officer and Chairman of the Board of UnitedHealth Group Inc. The settlement is the first with an individual under the "clawback" provision (Section 304) of the Sarbanes-Oxley Act to deprive corporate executives of their stock sale profits and bonuses earned while their companies were misleading investors.  It includes a $7 million penalty, the largest against an individual in the backdating case.

The Commission's complaint alleges that from 1994 through 2005 McGuire repeatedly caused the company to grant undisclosed, in-the-money stock options to himself and other UnitedHealth officers and employees.  In March 2007, UnitedHealth restated its financial statements for each year from 1994 through 2005, and disclosed material cumulative pre-tax errors in stock-based compensation accounting that totaled $1.526 billion for that period.

The Commission's complaint further alleges that from 1994 through 2005, McGuire personally received more than 44 million split-adjusted UnitedHealth options, most or all of which were backdated. McGuire exercised and sold more than 11 million of these backdated options for an in-the-money gain of more than $6 million. McGuire also received nearly $5 million of incentive-based cash bonuses in 2005 and 2006 tied to earnings per share targets that UnitedHealth would not have achieved under financial statements restated due to errors in stock-based compensation accounting.

According to the Wall St. Journal, Dr. McGuire retains about 24 million options currently worth about $800 million, as well as $530 million in pay from 1991-2006.  WSJ, Ex-CEO Agrees To Give Back $620 Million.

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