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The Securities and Exchange Commission (SEC) has filed a civil action against UnitedHealth Group Inc., and former United Health General Counsel David J. Lubben for allegedly engaging in a scheme to backdate stock options.  According to the SEC, between 1994 and 2005 United Health concealed more than $1 billion in stock option compensation by providing senior executives and other employees with secretly backdated grants and avoided reporting the expenses.  According to the Commission’s complaint, certain UnitedHealth officers used hindsight to pick advantageous grant dates for the company’s nonqualified stock options that on many occasions coincided with, or were close to, dates of historically low annual and quarterly closing prices for UnitedHealth’s common stock.

The complaint further alleges that UnitedHealth avoided reporting the charges by creating inaccurate and misleading documents indicating that the options had been granted at an earlier date.  Because of this, the company’s net income for the fiscal years 1994 through 2005 was overstated by as much as $1.5 billion.   

The SEC also charged Lubben with participating in the scheme because he was the person behind the false and misleading documents. Lubben personally received numerous backdated grants of options, representing as many as 3.8 million shares of UnitedHealth stock on a split adjusted basis. He exercised approximately 1.8 million of those options for approximately $1.1 million in gains attributable to improper backdating.

Too many executives view their companies as piggy banks and act with contempt for shareholders.  The securities industry is infected with this same culture of corruption.  Only those investors wise enough to get professional help in choosing advisers and investigating unregistered investments can hope to emerge unscathed.