The Association of U S West Retirees



UnitedHealth CEO to Retire Amid Stock-Options Probe
Sunday, October 15, 2006

UnitedHealth Group Chief Executive William McGuire plans to retire amid questions about the company's past stock-options grants, according to a person familiar with the matter.  He will be succeeded as CEO by Stephen Hemsley, Dr. McGuire's top lieutenant at UnitedHealth, this person said.

The news came after the company's board held a meeting Sunday.

UnitedHealth, one of the nation's largest health insurers with a market value of $66 billion, is among the most prominent of the more than 100 companies caught up in the stock-options scandal.  Dr. McGuire has been among the highest-paid executives in U.S. corporate history, amassing an enormous, options-based fortune over his 15 years running UnitedHealth.  At the end of 2005, his unexercised cache of options was valued at $1.78 billion, far and away the largest sum held by any U.S. executive, according to Standard & Poor's ExecuComp.

Also at risk are several directors on UnitedHealth's 12-member board who served on its compensation committee during the period when the improperly dated grants were awarded, people familiar with the situation said.  Some past compensation-committee members include former New Jersey Gov. Thomas H. Kean, New York money-manager William Spears and Columbia University nursing-school dean Mary Mundinger.

Directors know that executives, and possibly UnitedHealth itself, face the prospect of civil action from the Securities and Exchange Commission in the options matter.  The matter also is being probed by federal prosecutors in Manhattan and by Minnesota's attorney general.

At issue in the UnitedHealth case and others are questions about whether stock options were improperly backdated.  Options are designed to give recipients the opportunity to profit if the company's share price rises in the future.  Grants typically are structured so that the recipient can buy shares later at the stock's market price on the day the option was granted, called the exercise price.  Backdating involves pretending that the grant was awarded on an earlier day, when the share price was particularly low, giving the recipient a chance at extra profit.

During his tenure at the helm of UnitedHealth, Dr. McGuire has year after year received giant grants of options.  In many of those years, the purported dates were suspiciously fortunate.  Between 1994 and 2002, he received 12 grants, each dated just before a sharp rise in the company's share price.  Three grants -- in 1997, 1999 and 2000 -- were dated on the day of the stock's lowest closing price of the year.

A Wall Street Journal analysis published in March found that the odds of such a fortunate pattern of dates occurring if the dates were chosen at random were infinitesimal -- less than one in 200 million.  The company said at the time that its granting process was "appropriate," but the article spurred the internal investigation as well as probes by authorities.

Until recently, some people familiar with the matter said, Dr. McGuire's chances of surviving the options investigation seemed fairly high.  These people said the options problems -- which the company had previously indicated would likely cause it to restate financial results -- appeared confined to sloppy bookkeeping.  But the WilmerHale probe concluded that the issues ran deeper and included backdating of option grants, said people familiar with its findings.

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