Backdating stock scandal
"When the issue of options backdating was disclosed, the market treated it with indifference and there was no abnormal movement in United's stock," the company says in its dismissal filing.The shareholders contend that there were real losses, in part because the backdated options were not properly accounted for and resulted in 12 years of restated financial results for United Health."Hemsley personally offered backdated options to new hires, was required to approve all grants in excess of 5,000 shares [and] approved backdated mass grants," asserts the brief in the lawsuit that has the California Public Employees' Retirement System (Cal PERS) as lead plaintiff.The company denies the assertions, noting that Hemsley was cleared from involvement by independent organizations paid for by the United Health board to examine the practice of awarding options at a hand-picked low price to maximize value as United Health's stock rose."Assertions by plaintiffs who are suing us do not change these conclusions," United Health said in a statement to the Star Tribune. Hemsley has been credited with an extraordinary job of leading United Health in the last 18 months to one of the best corporate governance records in the country." The description of Hemsley's purported role in the backdating process is contained in a motion by Cal PERS and other shareholders opposing United Health's attempt to get their lawsuit dismissed.United Health asserts that shareholders did not suffer losses as a result of the stock option revelations.C., law firm of Wilmer Hale concluded that backdating practices largely were controlled by Mc Guire, and Hemsley had only a minor role."His focus was on the recipients of the grants among non- executive officers," the report said.
Hemsley had little or no role in the negotiation of, or the process leading up to, the agreement or the option award in connection with the agreement." The report also concluded that the 1999 option grants "were likely backdated." A "Special Litigation Committee" hired by United Health's board to review shareholder lawsuits reported last year that Hemsley's role in the backdating was minor. Hemsley received significant stock option grants during the time period cited in the [lawsuits] ...Mc Guire, who was fined a record million by the Securities and Exchange Commission, also repriced his considerable amount of stock options and gave up some.The SEC inquiry is ongoing; the status of a separate Justice Department investigation is unknown.Hemsley, then chief operating officer, succeeded Mc Guire as CEO.Cal PERS says in its brief that Hemsley should have known about the backdating problems "given his considerable background as a former Arthur Andersen partner." "Hemsley also understood the broad-based grants were in-the-money and should have been expensed [under an accounting rule]," the plaintiffs' brief states.