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Judge OKs $900M-plus UnitedHealth settlement

Thursday, December 18, 2008

By TOM MURPHY, AP Business Writer

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A federal judge on Thursday gave preliminary approval to a $900 million-plus settlement that resolves a lawsuit pitting UnitedHealth Group shareholders against the insurer over its stock options.

Minnetonka, Minn.-based UnitedHealth has agreed to pay $895 million to settle the class-action case. Former UnitedHealth Chairman and Chief Executive William McGuire also agreed to pay $30 million toward the settlement and to return stock options representing more than 3 million shares.

The settlement also calls for a $500,000 payment from retired UnitedHealth General Counsel David J. Lubben, who also was named a defendant in the case.

The lawsuit centered on a scandal over the backdating of UnitedHealth stock options 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 that boosts 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.

The plaintiffs were led in the case by the California Public Employees Retirement System (CalPERS) and Alaska Plumbing and Pipefitting Industry Pension Trust.

CalPERS attorney Ramzi Abadou said the retirement system was pleased with the judge's order. He referred to CalPERS officials for further comment. They could not be immediately reached.

UnitedHealth officials consider the settlement "fair, adequate and reasonable," spokesman Don Nathan said.

McGuire spokesman Bob Chlopak declined to comment on the judge's decision.

U.S. District Court Judge James M. Rosenbaum will hold a hearing in March for a final approval of the settlement, after the plaintiffs in the case are notified.

Rosenbaum has yet to grant preliminary approval for a separate settlement in which McGuire agreed to return $320 million in options and forgo more than $99 million in other retirement and executive savings benefits to resolve another lawsuit.

The judge heard arguments for a preliminary approval of this settlement last week, but no ruling was made. Rosenbaum did lift an injunction issued last year that froze millions of McGuire's UnitedHealth options.

The order means McGuire can exercise options not tied to the possible settlements.

UnitedHealth shares traded at $25.31 after hours on Thursday, down more than 50 percent from the price of around $56 that they fetched when McGuire's options were frozen.

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