Federal judge OKs $925M UnitedHealth settlement

UnitedHealth Group Inc. moved closer to finally putting its stock options backdating problems behind it Tuesday, when a federal judge approved a class-action settlement of more than $925 million.

Minnetonka, Minn.-based UnitedHealth will pay $895 million toward a settlement for shareholders. Former Chairman and CEO William McGuire contributes $30 million and cancels 3.6 million stock options.

The insurer's former general counsel, David J. Lubben, will pay $500,000.

The parties first agreed to this settlement more than a year ago, and U.S. District Court Judge James M. Rosenbaum granted preliminary approval in December. He then approved it in an order filed Tuesday.

Rosenbaum also set attorney fees at $64.8 million.

The settlement is one of the largest involving options backdating cases if not the largest, said Peter Henning, a law professor at Wayne State University in Detroit. He said many similar cases have not fared as well.

"Any number of these lawsuits have been dismissed, so it's a significant recovery," he said.

UnitedHealth spokesman Don Nathan said his company welcomed the approval "and the closure it brings to these matters."

McGuire and Lubben both said through representatives that they were pleased to have the case resolved.

The lead plaintiff in the case was the California Public Employees Retirement System, and its representatives could not be reached for comment Tuesday.

The lawsuit centered on a scandal over stock options backdating that forced McGuire to step down from both roles in 2006.

The litigation claimed investors were hurt because UnitedHealth and McGuire didn't really grant stock options when they said they did in the late 1990s and early 2000s.

Backdating 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 this can boost a recipients' windfall when they sell the stock.

The practice 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.

This was the second approval granted this summer for a large settlement involving UnitedHealth stock options. Last month, Rosenbaum also approved the resolution of a derivatives case that pitted UnitedHealth shareholders against McGuire and several other company executives.

The shareholders had accused the executives of failing to fulfill their fiduciary duties by allowing the backdating. They recovered mostly options and cash for the company.

Court papers put the value of that settlement, which also was approved by a Minnesota state judge, at around $718 million in January.

Nathan said UnitedHealth has already accounted for that settlement and the one approved Tuesday, so the amounts will not affect future earnings.

Aside from these civil cases, UnitedHealth also has said an investigation into its stock options practices by the U.S. Attorney for the Southern District of New York has closed.

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

The company's shares rose nearly 3 percent, or 75 cents, to $27.82 in trading Tuesday.