Federal judge OKs UnitedHealth options settlement

INDIANAPOLIS - A federal judge approved on Wednesday a settlement once valued at about $900 million for a lawsuit pitting UnitedHealth Group Inc. shareholders against company executives over a stock options scandal that took down the company's CEO in 2006.

Shareholders of the Minnetonka, Minn.-based insurer sued former Chief Executive William McGuire and several other executives in 2006 and will recover mostly options and cash for the company. They accused the executives of failing to fulfill their fiduciary duties by allowing the backdating of stock options.

The practice involves manipulating the timing of options grants so they look as though they were made on days when the stock's value was lower. Doing that boosts the recipient's windfall when they sell the stock.

Backdating is not illegal if it is properly disclosed. But concealing it can hide the true costs a company incurred, inflating its profits and possibly its stock price.

UnitedHealth wiped out more than $1.5 billion in past profits when it acknowledged that it backdated stock options. McGuire stepped down in 2006.

The parties involved in the case agreed in late 2007 to a settlement. McGuire agreed to return $320 million in options and forgo more than $99 million in other retirement and executive savings benefits. Givebacks and repricings by other executives helped push that total to around $900 million.

But UnitedHealth's share price has tumbled since then, reducing some of the settlement's value. Court papers filed Wednesday put the value at $718 million in January. U.S. District Judge James Rosenbaum in Minneapolis approved the settlement.

UnitedHealth spokesman Don Nathan said Wednesday he didn't have an updated total.

The insurer's stock rose 18 cents in trading Wednesday to $25.16, or about 50 percent less than the range in which it traded in late 2007.

Nathan said the insurer accounted for the settlement in 2008, so it would not affect future earnings. He said UnitedHealth hasn't determined what will be done with the options.

"There's some historic recovery for the company in this litigation, so that's a positive, and we're pleased to have resolved it in this fashion," he said.

A Minnesota state judge also had approved the settlement in May.

However, UnitedHealth still faces other legal challenges over its options woes. A federal judge must approve a settlement for a separate case in which the insurer has agreed to pay $895 million to settle the class-action case involving shareholders.

UnitedHealth also has agreed to pay $17 million into a settlement fund to resolve Employee Retirement Income Security Act litigation. That case also is pending.

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