Public pension systems file suit on back-dating of stock options

Spurred by the compensation packages for executives of UnitedHealth Group, Inc., five public retirement systems have initiated a lawsuit related to the issuance of stock options.

The systems want to stop Chief Executive Officer William McGuire and Chief Operating Officer Stephen J. Hemsley from exercising back-dated stock options until the suit is resolved.

The lawsuit alleges that McGuire, Hemsley, and several other UnitedHealth executives received several billion dollars worth of illegal stock option grants that were backdated to coincide with dates on which the stock prices were particularly low. For example, between 1997 and 2002, McGuire and Hemsley purportedly received stock options at, or pennies from, UnitedHealth's annual stock-price low six years in a row. The lawsuit challenges the validity of these stock options on the ground that they were not issued in accordance with the executive compensation plans and employment agreements agreed to by the Company and voted on by shareholders. By backdating the grants to earlier dates with lower stock prices, UnitedHealth executives received windfall profits at the direct expense of UnitedHealth.

The retirement systems involved in the lawsuit are:

• St. Paul Teachers' Retirement Fund


• Public Employees' Retirement System of Mississippi


• Jacksonville Police & Fire Pension Fund


• Louisiana Municipal Police Employees' Retirement System


• Louisiana Sheriffs' Pension & Relief Fund