Gardy & Notis, LLP achieves $930 million settlement of stock options backdating claims
December 26, 2011
Gardy & Notis, LLP has been appointed by the Court as lead counsel for shareholders of UnitedHealth Group Incorporated (NYSE: UNH) seeking to recoup damages against UnitedHealth Group's top executive officers and board of directors for permitting company executives to backdate stock option grant dates to take advantage of lower exercise prices then the price on the actual grant date. As the options were priced below the stock's fair market value when they were actually awarded, this created instant paper gains to the executives. This instant paper gain was equivalent to extra compensation and was thus a cost to UnitedHealth Group. UnitedHealth Group, however, failed to include the costs associated with this extra compensation in its financial results, and thereby overstated its profits.

Lead counsel Gardy & Notis, LLP achieved a settlement of the case that includes forfeited options, option repricings and/or relinquishment of certain other employment benefits by former CEO William W. McGuire, former General Counsel Donald J. Lubben, and current CEO Stephen J. Hemsley and others, the total value of which is approximately $895 million (Black Scholes) or $930 million (intrinsic). The settlement is the largest shareholder derivative action settlement ever achieved as well as the largest settlement of any case involving backdated stock options.

The settlement was reached as a result of a lengthy mediation among the plaintiffs, and the Special Litigation Committee appointed by the UnitedHealth board of directors that has been investigating the backdated options scheme. Former Minnesota Supreme Court Chief Justice Kathleen A. Blatz and former Justice Edward C. Stringer were members of the Special Litigation Committee. The mediator for the mediation was former U.S. District Court Judge Layn R. Phillips.

In approving the settlement, the Court found:

"Plaintiffs' Counsel spent significant time and labor prosecuting this lawsuit. They reviewed millions of pages of documents, performed legal research, engaged in motion practice, and participated in the proceedings before the Minnesota Supreme Court and in lengthy settlement discussions.... The benefits of the settlement are in the hundreds of millions of dollars. Plaintiffs' Counsel contributed to the excellent results. They demonstrated considerable skill and determination. The state lawsuit contributed to the voluntary repricing and surrender of stock options by McGuire, Lubben, and other UH executives, and to corporate governance reforms. The amount involved is enormous, and the results obtained excellent."

The case is In re UnitedHealth Group Incorporated Derivative Litigation, Case No. 27-CV-06-8085, Minnesota District Court, Hennepin County.
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