Two US Pension Funds Sue Over Stock Options Backdating

June 13, 2006 ( - Two more large US pension funds filed suits against companies that are tied up in the mounting investigation over stock option backdating.

According to the London’s Financial Times, Heavy & General Laborers’ Pension and Annuity Funds sued security software company McAfee in a federal court in the Northern District of California on Monday, alleging “constructive fraud” through the backdating of stock options. Technology company Juniper Networks suffered a similar suit by the Employer-Teamsters Pension Health and Welfare Funds.

The two suits come at a time when dozens of companies are being investigated for illegally awarding stock options to executives at artificially low prices. The probe by the Securities and Exchange Commission, federal prosecutors and an upheaval by angry shareholders has already brought down several top executives. By the end of May, 22 companies were under scrutiny by the Justice Department, the SEC, or the Internal Revenue Service (IRS) (See Stock Option Probe Biggest Since Abusive Fund Trading Cases ).

The focus of investigations is rooted in the years before 2002, when stringent Sarbanes-Oxley corporate governance rules limited the scope for backdating of options.

The Times also reported that four more companies admitted to being investigated by the SEC, which include the ranks of FBroadcom, Equinix, Applied Micro Circuits and Cyberonics (See Monster, Apollo Group Join Companies Investigating Stock Options ).

UnitedHealth has also been targeted by pension funds upset over backdating.

Five public pension funds sued UnitedHealth over backdating allegations in May, bringing claims that William McGuire and Stephen Hemsley, the current CEO and COO, respectively, 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 (See Public Pension Funds Sue UnitedHealth over Stock Option Grants).Soon after, the Employees Retirement System of Ohio and the Teachers’ Retirement System of Ohio also filed suit against the company in the US District Court for the District of Minnesota (See UnitedHealth Sued Again Over Option Dating Allegations ).