Public Pension Funds Sue UnitedHealth over Stock Option Grants

May 22, 2006 ( - A lawsuit has been filed on behalf of a group of five public pension funds seeking to remedy the harm caused to UnitedHealth Group, Inc. and its shareholders as a result of backdated executive compensation stock option grants.

According to a news release, the group of public pension funds, consisting of St. Paul Teachers’ Retirement Fund Association, Public Employees’ Retirement System of Mississippi, Jacksonville Police & Fire Pension Fund, Louisiana Municipal Police Employees’ Retirement System, and Louisiana Sheriffs’ Pension & Relief Fund, are also asking the court to prevent William McGuire and Stephen Hemsley, the current chief executive officer and chief operating officer, respectively, from exercising their backdated stock options until the lawsuit is resolved.

The lawsuit alleges that McGuire, Hemsley, and several other UnitedHealth executives received several billion dollars worth of illegal stock option grants that were backdated to coincide with dates on which the stock prices were particularly low, according to release. The suit challenges the validity of these stock options on the grounds that they were not issued in accordance with the executive compensation plans and employment agreements agreed to by the company and voted on by shareholders.

In addition, the lawsuit asserts claims for breach of fiduciary duty, unjust enrichment, rescission of the stock option grants and violations of Section 10(b) of the Securities Exchange Act of 1934 against McGuire, Hemsley, several current and former executives that received like grants, and members of the board of directors responsible for approving the grants.

Earlier in the month, UnitedHealth said it may restate results that could reduce past earnings by as much as $286 million and that the Securities and Exchange Commission (SEC) is conducting an informal inquiry into its stock options granting practices (See UnitedHealth Under Fire for Stock Options ).

The list of companies the SEC is investigating for stock option abuses continues to grow (See Investigation Widens into Stock Option Backdating ).