MINNEAPOLIS--A federal judge has refused to dismiss a class action securities lawsuit filed against UnitedHealth Group Inc. related to its stock options practices.

James Rosenbaum, U.S. chief district judge in the U.S. District Court of Minnesota, on Monday denied the Minnetonka, Minn.-based insurer's motion to dismiss the complaint, which seeks to recover billions of dollars of alleged investor losses caused by a substantial drop in the company's share price. The decline in the company's stock price was related to the company's announcement of "significant deficiencies" in the granting and accounting for stock options to its executives and government probes into these practices, according to the complaint.

The lawsuit also seeks disgorgement of hundreds of millions of dollars of insider trading profits.

The judge ruled that the plaintiffs adequately presented their claim that the defendants made false and misleading statements that they knew were false at the time they were made; that the plaintiffs presented facts that supported the allegations in the complaint; and that they adequately made the necessary connection between the defendants' actions and the company's stock price.

"The fact of the matter is, the case has all the hallmarks of corporate fraud and it's not surprising that the motion to dismiss was denied," said Karl Cambronne, an attorney with Minneapolis-based Chestnut & Cambronne who is representing 10 pension fund plaintiffs in the case.

In his ruling, Judge Rosenbaum said he was not expressing an opinion on the merits of the case, but rather that the complaint met the requirements of the Private Securities Litigation Reform Act, which sets high standards for pleading securities cases.

"We are pleased with the judge's ruling and look forward to prosecuting the case on behalf of the class," a spokesman for the California Public Employees' Retirement System, the lead plaintiff in the shareholder lawsuit, said in an e-mailed statement.

The judge last week also denied a motion by the insurer and the government to stay certain depositions in the case, rejecting the government's argument that the depositions would interfere with the ongoing probe of UnitedHealth's stock option practices. Barring an appeal of that decision, the plaintiffs can take depositions of former and current UnitedHealth employees this month, Mr. Cambronne said. "We know that the backdating happened," he said. "The question is, who's responsible?"

A UnitedHealth spokesman could not be reached for comment.