The husband of a UnitedHealth Group executive has agreed to pay about $140,000 to resolve civil charges from the Securities and Exchange Commission that he engaged in insider trading using information purloined while his wife was working from home.
Airplane mechanic James E. Hengen, 52, of Chanhassen, was sued by the SEC for allegedly stealing information related to two pending UnitedHealth acquisitions and then using what he learned make about $60,000 buying and selling stocks. The SEC also alleged that Hengen passed along the information to his brother and three co-workers, who used it to buy shares in companies just before deal announcements increased their stock prices.
Reached by phone Monday, Hengen declined to comment on the case, except to say that the matter was being resolved without a trial.
Last Thursday, Hengen filed a consent to a final judgment that says he neither admits nor denies the SEC's civil allegations against him. SEC policy says the commission doesn't let defendants consent to judgments if they also deny the allegations in the underlying case.
The proposed final judgment filed in federal court in Minnesota calls for Hengen to disgorge $63,804 in profits he made from the insider trades, plus penalties of $72,144 and prejudgment interest of $3,865. The judgment permanently bars him from any other securities-law violations.
The 11-page complaint says Hengen breached "his duty of trust and confidence" to his wife, who is not named in the complaint or accused of wrongdoing. Her title is described as "vice president of human capital" at a subsidiary of UnitedHealth Group — a position that gave her access to nonpublic information about acquisition negotiations in UnitedHealth's OptumCare division.
A spokesman for Minnetonka-based UnitedHealth Group declined Monday to comment on the case.
The complaint says Hengen made illegal insider trades on two companies that were acquired in 2016 and 2017 — USMD Holdings, a Texas-based firm that manages a chain of clinics and hospitals in the state, and Surgical Care Affiliates, an Illinois-based company that runs a national chain of ambulatory surgery centers and surgical hospitals.
The SEC says Hengen bought more than 8,000 shares of USMD using his personal accounts during the summer of 2016 after overhearing his wife say the words "USMD" and "Dr. House" in a work conference call. A little sleuthing on Google told Hengen that Dr. John House was CEO of a Texas company called USMD, and he quickly started buying shares.
'Breach of his duty of trust'
"Hengen knew that his wife had been traveling to Texas frequently for work, and that her work involved mergers and acquisitions. Based on these facts, Hengen concluded that UnitedHealth was in negotiations to acquire USMD," the complaint says. "Again in breach of his duty of trust and confidence to his wife, Hengen also tipped his brother and three co-workers, recommending they too buy USMD stock."
Text messages obtained by investigators showed the Hengen texted one person to say "Hang on to usmd" because "Good news coming soon."
USMD's stock price went up 8 percent after WellMed, a subsidiary in UnitedHealth's OptumCare division, announced it would acquire USMD in a $250 million deal in September 2016. Hengen netted $32,315 in profit buying USMD shares for between $16 and $20 apiece, and then selling them for about $22 per share. The uncharged brother and co-workers netted $8,340, the complaint says.
Snooping in notes
That December, Hengen sneaked a peek inside a notebook that his wife had left in the dining room, where she was working from home, and saw references to a company called "Surgical Care Affiliates" (SCA).
"Hengen concluded that UnitedHealth likely was in negotiations to acquire the company referenced in his wife's notebook," the complaint says. "Hengen knew this information was both material and nonpublic, and that it was wrong for him to trade on it."
Just after Christmas that year, Hengen acquired more than 3,100 shares for about $47 per share. On Jan. 9, 2017, UnitedHealth's OptumCare division announced it would buy SCA in a $2.3 billion transaction that sent SCA shares up 16 percent to almost $57. Hengen cashed out his position in SCA and took in about $31,489 in profits.
Joe Carlson • 612-673-4779
