SEC: UnitedHealth Group Backdating Stock Options

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A complaint by the SEC alleges the Minneapolis-based health insurance company UnitedHealth Group to have committed financial crimes related to backdating stock options worth over $1 billion.

The company runs a network of seven subsidiary operating businesses: AmeriChoice, OptumHealth, Ovations, Uniprise, Ingenix, and Prescription Solution.

The process of backdating stock options – that is, issuing stock options to employees which are dated prior to the date the company granted the option – is not illegal in itself; the SEC mandates strict accounting and bookkeeping practices associated with stock options due to the high level of financial crime and tax evasion associated with options, not adhering strictly to these policies is the bulk of the UnitedHealth Group accusation.

Additionally, UnitedHealth General Counsel David J. Lubben was, under a separate complaint, considered to have participated in the alleged fraud. With no admission of guilt, Lubben accepted a five-year officer and director bar, and a half million dollar penalty to settle the charges.

The accusation by the Commission suggests that UnitedHealth has, in the last dozen years, hidden more than $1 billion in stock option compensation from the tax man, and investors.

Linda Thomsen of the SEC said in the press release, “UnitedHealth engaged in a long-running scheme to hide over a billion dollars in executive compensation. By materially misstating these expenses for over a decade, UnitedHealth breached its duty to shareholders to accurately report its financial results.”

UnitedHealth Group was created in 1977 as the UnitedHealthCare Corporation (renaming itself in 1998), not becoming publicly traded until 1984.

The SEC says the UnitedHealth Group has been tremendously cooperative in the investigation, and as such, accepting the settlement, no charges of fraud or monetary punishment will be affirmed. The company has, according to the SEC’s press release, “[taken] significant remedial actions in response to the findings of its internal investigation, including the implementation of new controls designed to prevent the recurrence of fraudulent conduct, removal of certain senior executives and board members, and the recoupment of nearly $1.8 billion in cash, options value and other benefits from several former and current officers, through, among other things, derivative litigation and the voluntary re-pricing and cancellation of retroactively-priced options.”

“The Commission has filed fraud charges against UnitedHealth’s former CEO and General Counsel for their roles in the options backdating scheme, and today’s complaint against the company details the seriousness of UnitedHealth’s misconduct. The settlement, however, takes into account the company’s extraordinary cooperation with the Commission’s staff’s investigation and the meaningful remedial efforts it has undertaken to recoup stock option value improperly given to former corporate executives and to improve its accounting controls and corporate governance policies.” added Fredric Firestone, SEC.

The SEC’s successful prosecutions have fallen drastically lately, all the negative press related to the Commission is purportedly resulting in an increase in coverage on successful prosecutions.

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