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UnitedHealth Group Inc. at times backdated stock options, according to an outside review of the company's executive compensation practices.
Released last week, the review--commissioned shortly after the Minnetonka, Minn.-based health insurer learned that it was the subject of a Securities and Exchange Commission inquiry into the company's stock option granting process--was conducted by a special committee of UnitedHealth's board of directors and its independent counsel, Wilmer Cutler Pickering Hale & Dorr L.L.P.
The WilmerHale team, led by William R. McLucas, former SEC director of enforcement, culled documents from officers and employees of UnitedHealth, amounting to more than 26 million pages. They also interviewed more than 80 current and former employees, current and former directors and former auditors.
The report focused on 29 distinct option grants made by the company from 1994 through 2006, which comprised nearly 85% of the options UnitedHealth issued in that period.
The report said that the measurement dates used by the company for most of the 29 options grants "were not correct, and many of these grants were likely backdated," and option grants made to newly hired employees and employees receiving promotions "were backdated as a matter of policy."
The report said UnitedHealth's internal controls related to option grants were "inadequate," and senior management "failed to ensure that option granting practices were appropriate."
The report also said disclosures made to federal regulators about stock option granting practices and related accounting were "not accurate in certain respects."
Copies of the report have been provided to the SEC and the Department of Justice, UnitedHealth said.
Additionally, UnitedHealth said in a statement the company's outgoing chief executive, William W. McGuire, and his successor, Steven J. Hemsley, have voluntarily agreed to reprice all options awarded through 2002 to the annual high share price for each year and to take any other appropriate action to eliminate any possible financial benefit from options-related issues identified in the report.
Similar actions are expected from other UnitedHealth senior executives, the company said.