Securities Law

'Forgotten' Sarbanes Clawback Clause Used Against UnitedHealth Ex-CEO

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Two former executives of UnitedHealth Group Inc.—the CEO and general counsel—have agreed to give back stock options gains, unexercised options and retirement pay to resolve stock-options backdating claims by the company.

Under an agreement announced by the company yesterday, givebacks by ex-CEO William McGuire are valued at more than $600 million while those by former GC David Lubben are valued at about $30 million.

McGuire’s repayment is believed to be one of the largest ever by an executive accused of compensation abuse, the Wall Street Journal reports (sub. req.).

The agreement, submitted to a Minnesota federal court, recommends that derivative lawsuits based on stock options backdating be dismissed. The deal also helped settle a complaint by the Securities and Exchange Commission, which also included a record $7 million penalty against McGuire, who didn’t admit or deny wrongdoing.

The settlement was the first against an individual by the SEC using a “clawback” provision under the Sarbanes-Oxley Act, the Minneapolis Star Tribune reports. The act’s little-used Section 304 requires CEOs and CFOs of companies that have to restate earnings because of financial misconduct to pay back bonuses and incentive compensation received from their companies, Financial Week reports.

The SEC has cited Section 304 three times in the last six months in complaints against executives of companies that restated income, including Mercury Interactive and KLA Tencor, Financial Week says. The “forgotten” clause may have been ignored previously because key terms are not well-defined.

The SEC has investigated more than 140 companies for backdating stock options to increase their value. On Wednesday, a jury convicted the former chief of human resources of Brocade Communications Systems Inc., Stephanie Jensen, for falsifying records regarding backdating. Brocade’s ex-CEO, Gregory Reyes, was found guilty in August.

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