"When the issue of options backdating was disclosed, the market treated it with indifference and there was no abnormal movement in United's stock," the company says in its dismissal filing.
The shareholders contend that there were real losses, in part because the backdated options were not properly accounted for and resulted in 12 years of restated financial results for United Health.
"Hemsley personally offered backdated options to new hires, was required to approve all grants in excess of 5,000 shares [and] approved backdated mass grants," asserts the brief in the lawsuit that has the California Public Employees' Retirement System (Cal PERS) as lead plaintiff.
The company denies the assertions, noting that Hemsley was cleared from involvement by independent organizations paid for by the United Health board to examine the practice of awarding options at a hand-picked low price to maximize value as United Health's stock rose.
Although this practice gave the senior executives significant stock holdings, since the grant was issued at-the-money, the share price had to appreciate before the executives would actually earn a profit.
A 1982 amendment to the tax code created an incentive for executives and their employers to work together to break the law.
The Minnesota attorney general also has jumped into a shareholder suit seeking to get to the bottom of the matter.
Others are less concerned with option-dating and more concerned with the cumulative effects that big paydays for executives at United Health are having on the health care industry.
This enabled companies to issue enormous compensation packages to senior executives without notifying shareholders.
"My thoughts relate more to United Health Group's pay in general, rather than on the backdating issues, which are hard to parse due to ambiguous legal standards," said Broc Romanek, a former SEC lawyer, corporate counsel and the editor of The Corporate and Compensation
"United Health Group's CEO serves as a good example of excessive CEO pay being the fault of an aggressive CEO and a compliant board, which impacted the pay structure of an entire industry," Romenek said.
and dozens of lesser-known technology firms were implicated in the scandal. .) Read on to find out how the scandal emerged, what brought it to and end and what you can learn from it now.
Options Backdating The essence of the options backdating scandal can be summarized simply as executives falsifying documents in order to earn more money by deceiving regulators, shareholders and the Internal Revenue Service (IRS).