Eric Miller, Associated Press
McGuire defense: I'm not an accountant
- Article by: DAVID PHELPS
- Star Tribune
- June 2, 2008 - 10:58 PM
A stock-option scandal cost Dr. William McGuire one of the top health care jobs in the nation. Now he says he was simply following the questionable advice of his top legal and financial advisers.
McGuire's lawyers are expected to argue later this month that the former CEO of UnitedHealth Group relied on others to assess the legality and appropriateness of backdated stock options granted to top executives and new hires. As such, all allegations against him in a shareholder's lawsuit should be dropped, according to papers filed in court by McGuire late last week.
McGuire says he did not know that the options, which were backdated to times when the stock price was lower to maximize gains, were incorrectly recorded in company books.
That omission ultimately caused a $1.56 billion downward restatement of earnings going back 12 years.
"Is there sufficient evidence that Dr. McGuire knew that UnitedHealth's accounting for and disclosures regarding the stock option grants were wrong? The answer -- after nearly 60 depositions and millions of pages of document production -- is no," McGuire's lawyers say in a brief.
"Dr. McGuire has no formal training or degrees in finance, accounting or law," the brief states. "His only professional training is as a medical doctor with a specialty in pulmonology."
The filing is in support of a summary judgment motion by UnitedHealth to toss out a shareholders lawsuit even before the trial begins. Those are among the first comments McGuire has offered in defense of the backdating activity.
Since the controversy surfaced in 2006, McGuire has been the face of stock option backdating at Minnetonka-based UnitedHealth.
On June 24, attorneys for UnitedHealth and the other defendants will argue before U.S. District Court Judge James Rosenbaum that shareholders led by the California Public Employees Retirement System (CalPERS) have failed to prove allegations that a flawed stock options process caused investors to lose money. (The hearing originally was scheduled for today but was postponed.)
In fact, the company has argued in previous filings, CalPERS made $23 million by purchasing shares of UnitedHealth stock between early 2005 and May of 2006.
In addition to McGuire, other individuals named as defendants in the case include former general counsel David Lubben and board member William Spears, both of whom also left the company after an independent investigation determined that options "likely" were backdated by McGuire with the knowledge of Lubben and Spears.
McGuire, as CEO and board chairman, received the lion's share of the backdated options, but other executives received them as well. New hires also received backdated options, which usually were "in the money" because the price of the option was less than the price of UnitedHealth stock at the time.
A tentative settlement in another shareholder lawsuit involves the repayment of $920 million to UnitedHealth through the upward repricing of unexercised stock options held by McGuire, current CEO Stephen Hemsley and others.
The company contends that after more than a year of pretrial discovery, CalPERS and its co-plaintiffs have not proven their fraud case.
"The undisputed facts establish that no shareholder of UnitedHealth Group suffered any loss as a result of alleged false or misleading disclosures relied on by plaintiffs," the company says.
CalPERS, however, claims that the backdating of options was rampant and reckless at UnitedHealth for years.
"There is no legitimate reason to backdate stock options," CalPERS said in its brief opposing summary judgment.
David Phelps • 612-673-7269
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