Lawyers Seek to Tie Up Minn. UnitedHealth Chief’s Stock Options

Departing Minn.-basedUnitedHealth Group Inc. chief William McGuire is sitting on hundreds of millions of dollars worth of stock options. But a federal judge is weighing whether to make him get permission before cashing them in.

A company-sponsored report has concluded that many of McGuire’s stock options were probably backdated, and the company has acknowledged that federal investigators are looking into the way it granted stock options.

UnitedHealth, the nation’s second-largest health insurer, has said it will have to restate its earnings back to 1994.

California’s public employee pension fund, the largest in the nation, is suing over the company’s handling of options. On Tuesday it asked Judge James Rosenbaum to bar McGuire from exercising his options unless he gets court permission, and to put $135 million he got from selling stock in February into a trust. Rosenbaum didn’t rule on the matter immediately.

William Lerach, an attorney for the pension fund, cited the possibility that federal authorities could seize the money if a criminal case is ever filed. Neither McGuire nor the company have been charged criminally, but UnitedHealth has acknowledged receiving a subpoena from the U.S. Attorney’s Office in New York.

McGuire attorney Steve Gaskins said UnitedHealth’s stock options plan is frozen while the company finishes investigating the matter. In any case, he said that even if McGuire exercises some options, the cash would remain available to pay any judgments.

McGuire had $1.78 billion in unexercised stock options at the end of 2005. But the company’s share price has dropped 25 percent since then, and repricing from the backdating controversy sliced off another $200 million.

Karl Cambronne, lead attorney for one group of shareholder lawsuits against UnitedHealth, said the parties are trying to work out a deal to address concerns that the money could be seized or spent.

McGuire agreed to step down as chairman on Oct. 15 and will step down as CEO by Friday. He and the company’s board are still negotiating the terms of his departure, said Peter Carter, an attorney for the company. McGuire’s employment contract calls for a retirement benefit calculated by outside groups at $5.1 million a year along with other perks, but the company has said it expects that negotiations over the final terms of his departure will continue beyond Friday.