UnitedHealth Group Inc. (UNH) shares took initial hits on Dec. 27, after the suburban Minneapolis health insurer said the Securities and Exchange Commission's informal inquiry into its stock option practices has grown into a formal investigation.
The company got a formal order of investigation from the SEC staff on Dec. 19, UnitedHealth Group said in a filing on Dec. 26. "The Company has cooperated and will continue to cooperate with the SEC," UnitedHealth said.
Investors sold the stock to a low of $52.05 the next day. UnitedHealth Group's value later recovered to $53.56 in early afternoon trading on the New York Stock Exchange, up 0.6% compared to the previous session's close.
The company had announced in April that the SEC was informally looking into its stock option practices. UnitedHealth Group's founder and CEO, Dr. William McGuire, resigned as board chairman on Oct. 15 after an external review found that many of his stock options were likely backdated (see BusinessWeek.com, 10/16/06, "Hard Times for UnitedHealth"). McGuire agreed to leave as CEO by Dec. 1, turning the job over to the company's president, Stephen Hemsley.
Then the health insurer told investors Nov. 8 that it expects to take "significantly greater" charges than the $286 million it had previously predicted. And Hemsley agreed to have his options from 1997 and 2002 reset to the highest share price in the year in which they were granted. After giving up the gains from options that were suspended in 1999 and reinstituted in August, 2000, the value of Hemsley's options fell by $190 million.
UnitedHealth is one among more than a hundred companies that have been touched by the stock options accounting investigations of recent months, ranging from the information technology services company Affiliated Computer Services' (ACS) to Apple Computer (AAPL).