Risk Management

Whopping Backdating Settlement Reached

Former UnitedHealth leader will pony up $30 million. Meanwhile, a judge rejects another backdater's plea deal and plans jail time instead of probat...
Stephen TaubSeptember 10, 2008

Former UnitedHealth Group CEO and chairman William McGuire has agreed to pay $30 million to settle a class-action lawsuit over options-dating issues.

McGuire also agreed to cancel options to purchase 3.675 million shares of stock, according to The California Public Employees’ Retirement System (CalPERS), which led the lawsuit.

The nation’s largest pension fund said the settlement with McGuire, which is subject to approval by the United States District Court in Minnesota, is the largest cash recovery ever obtained from an individual defendant in a securities class-action lawsuit. The proposed settlement also provides for an additional payment of $500,000 by UnitedHealth’s former general counsel.

The agreement recognizes that McGuire continues to deny the allegations in the class-action complaint, according to the law firm Latham & Watkins, which made a separate announcement on behalf of McGuire.

The $30 million will be added to the $895 million to be paid by UnitedHealth Group under a settlement agreement previously reached by the company and 16 other individual defendants, including six current or former officers and 10 current or former directors, not including McGuire.

“This is a victory for the 1.5 million members of our system and all UnitedHealth shareowners,” said Rob Feckner, president of the CalPERS board, in a statement. “We are glad to have this chapter of stock-option backdating abuse behind us and to achieve comprehensive relief for the company’s shareowners. We hope this sends a strong message to other corporations that continue to look after their own best interests rather than the shareowners.”

McGuire, for his part, said in a statement, “I am pleased to be able to help bring the stock option dating issues closer to complete resolution.”

This is McGuire’s third settlement to resolve options-dating issues. In December 2007, he reached agreements with both the Securities and Exchange Commission and the UnitedHealth Group Special Litigation Committee, which remain subject to court approval.

In other backdating news, a federal judge Monday rejected a deal with prosecutors that would have given Broadcom Corp. co-founder Henry Samueli probation for lying to the Securities and Exchange Commission about his role in an alleged $2.2 billion stock-option scam, the Los Angeles Times reported.

The government’s allegations against Samueli, “if true, warrant a significant prison sentence,” U.S. District Judge Cormac Carney reportedly wrote in an order delivered to Samueli, his attorneys, and prosecutors at a hearing in a Santa Ana courtroom.

The Times noted that under the terms of the plea agreement, the judge could only accept or reject the recommended sentence, not modify it.

The news was startling, since it is rare for a judge to reject a plea deal between prosecutors and a defendant.

According to the Times, the judge was particularly irked by a provision in the plea deal that called for Samueli to pay $12 million to the government. The paper noted that the maximum court-imposed fine for the charge to which Samueli agreed to plead guilty is only $250,000.

“The court cannot accept a plea agreement that gives the impression that justice is for sale,” Carney reportedly wrote. Accepting the agreement, he added, would “erode the public’s trust in the fundamental fairness of our justice system.”

Last month, Samueli apologized to the judge in a two-page written statement. “I have spent days and nights thinking about why I said what I did in front of the SEC on May 25, 2007,” Samueli wrote, according to an Associated Press report at the time. “My statement before the SEC was completely out of character for me. I have tried to live my life in a way that showed that hard work and honesty were their own reward.”

Samueli, a billionaire philanthropist, is owner of the National Hockey League’s Anaheim Ducks franchise. His title at Broadcom was chairman and chief technology officer.

Fellow Broadcom co-founder Henry T. Nicholas III and former Broadcom CFO William Ruehle are still awaiting trial after having pled not guilty in June to committing fraud by backdating Broadcom stock options.

Ruehle has denied 21 securities fraud charges in Santa Ana, Calif., federal court. He is accused of filing false statements with the SEC, committing wire fraud, and falsely certifying financial reports. Ruehle is free on a bond of $2.6 million.

Nicholas pleaded not guilty to 25 counts contained in two indictments unsealed June 5. One of the indictments involves 21 charges alleging improper accounting for stock-option backdating at the microchip maker.

Nancy Tullos, former vice president of human resources, earlier this year pled guilty to obstruction of justice in exchange for her cooperation.