UNH Follow-up: Greed and Wrongdoing Become Public

On Sunday, October 15th, the Board of the UnitedHealth Plan (UNH) announced:

- that CEO William McGuire would step down immediately as Chairman and as a director, and leave the company by December 1, because an outside audit found that many of his stock option grants over nine years had been likely backdated to days when the company’s stock price was lower than the day the options were issued thereby increasing their value;

- that Dr. McGuire has promised to reprice his 1994-2002 options to their yearly highs. These option grants were once worth an incredible $1.6 Billion at the end of 2005;

- that its new CEO would be Stehen Hemsly, currently UNH’s President and COO, who also has promised to reprice his stock options, because of backdating, awarded through 2002 to the annual high share price for each year;

- that its General Cousel and one member of the Board’s compensation committee have resigned. The outside audit found that the financial relationship between Dr. McGuire and this member of the Board’s compensation committee, who was also his personal investment manager, constituted a conflict of interest. The General Counsel knew of this conflict, but did not inform the rest of the Board or take any corrective action; and

- that the company would miss the deadline for filing its audited third-quarter report with the SEC.

Currently, UNH is being investigated by the IRS, SEC, DOJ, and the Minn AG.

UNH’s stock price closed at $48.75 per share on Friday, October 13, before the Board announced its actions on Sunday. It’s high for the year was $64.61 last December.

UNH’s announcement is at: http://www.unitedhealthgroup.com/news/rel2006/1015SeriesofActions.htm

The findings of the outside audit are at:
www.unitedhealthgroup.com/assets/shared/Wilmer_Hale_Report.pdf

Also see my 7-21-06 post below: Something’s Seriously Wrong at UnitedHealth Plan (UNH).

armin

Something’s Seriously Wrong at UnitedHealth Plan (UNH)

UNH is one of our largest managed health care insurers, covering approximately 70 million individuals and managing some $68 billion in annual health care spending on behalf of its customers.

- According to Google Finance, UNH’s CEO William McGuire received $8,287,502 total compensation for 2005, plus $1,997,800 long-term incentive plan, plus $412,940 all other, for a FY total of $10,697,442.

Think $10.7 million is a lot….think again!!!

This guy also got stock options worth $1,601,658,510 (that’s 1.6 BILLION !!!)

- And, CEO McGuire received $10,220,859 cash compensation in 2004.

- In April 2006, the Wall Street Journal reported that at least 11 UNH executives, including CEO McGuire, may have received back-dated stock options. The Journal estimated that the odds were 1 in 200 million that CEO McGuire’s twelve option grants would occur on those days when UNH’s stock price was very low.

- In May, UNH said that it may have to restate its financial results for the past three years and lower earnings by as much as $286 million because of the way it awarded and accounted for stock options given to its executives.

- The SEC, US Attorney for New York, IRS, and the Michigan Attorney General are all investigating UNH.

- UNH’s stock price declined 28%, from $61.73 on Jan 1, 2006 to $44.37 on May 11th when the company confirmed the SEC probe. Its price had recovered to $51.40 on July 21st when the SEC announced its first civil action about the backdating of stock options against former executives of Brocade Communications. See: http://www.sec.gov/litigation/litreleases/lr19768.htm

armin

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One nifty feature of Google Finance is how easy it is to learn the compensation of top management. After entering a ticker symbol, just roll your curser over the manager’s name in the lower right-hand side of the page and you will see a link to that person’s bio and basic compensation as well as option compensation.