August 11, 2009 / 9:27 PM / 9 years ago

UPDATE 2-Judge OKs UnitedHealth $925.5 mln backdating pact

* UnitedHealth to pay $895 mln, ex-CEO to pay $30 mln

* Judge calls settlement ‘substantial’

* UnitedHealth shares rise 2.8 pct (Recasts second paragraph, adds comment from ex-CEO McGuire)

By Jonathan Stempel

NEW YORK, Aug 11 (Reuters) - UnitedHealth Group Inc (UNH.N) and former chief executive William McGuire will pay $925 million to resolve an investor class-action lawsuit accusing the health insurer of improperly backdating stock options.

The Minnetonka, Minnesota-based company will pay $895 million toward the settlement fund, while McGuire will pay $30 million and former general counsel David Lubben will pay $500,000. McGuire will also relinquish options to buy 3.68 million UnitedHealth shares.

Judge James Rosenbaum of the U.S. District Court in Minneapolis approved the settlement in an order made public on Tuesday.

Given that there was “significant risk” to the plaintiffs recovering nothing had the case been fully tried, “the $925.5 million settlement amount is substantial,” Rosenbaum wrote in his 26-page order, which was dated Aug. 10. He had granted preliminary approval for the settlement last year.

The lead plaintiff in the more than 3-year-old case is the California Public Employees’ Retirement System, or CalPERS, the nation’s largest public pension fund.

Stock options let holders buy shares in the future at fixed prices. Backdating involves the retroactive granting of options on dates when the stock price was low, which can make the awards more valuable. Concealing the practice can inflate a company’s earnings.

McGuire was forced to resign from UnitedHealth in October 2006 after the backdating surfaced.

In December 2007, he agreed with the U.S. Securities and Exchange Commission to a $468 million settlement that included a $7 million fine and reimbursement of four years of incentive- and equity-based compensation. He did not admit wrongdoing.

UnitedHealth is one of more than 200 companies subjected to internal or regulatory probes of backdating since the practice first became widely understood earlier this decade.

Rosenbaum also awarded legal fees of about $64.8 million in the case. CalPERS was represented by Coughlin Stoia Geller Rudman & Robbins LLP, a securities class-action specialist.

UnitedHealth spokesman Don Nathan said the company welcomed approval of the agreement “and the closure it brings to these matters.”

McGuire in a statement said he was pleased with the settlement’s approval, and that he now plans to focus on business and philanthropic interests.

Shares of UnitedHealth closed Tuesday up 75 cents at $27.82 on the New York Stock Exchange.

The case is In re UnitedHealth Group Inc PSLRA Litigation, U.S. District Court, District of Minnesota (Minneapolis), No. 06-1691. (Additional reporting by Ransdell Pierson; Editing by Steve Orlofsky)

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