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Stock Questions Push Out UnitedHealth CEO

UnitedHealth Group Inc. said on Sunday that Chairman and CEO William McGuire will step down and named a new chairman and CEO, after months of questions about the timing behind McGuire's stock option fortune.

The company said McGuire would leave the company "on or before" Dec. 1, and that he was stepping down on Sunday as chairman and as a director. The company said McGuire would continue as CEO until he leaves and would "assist in an orderly transition to new leadership."

The company named UnitedHealth President and Chief Operating Officer Stephen Hemsley as CEO. The company installed Richard Burke, the founding CEO of UnitedHealth's predecessor and a director since 1977, as chairman.

The company said board member William G. Spears was resigning, and that General Counsel David J. Lubben would retire.

The sweeping overhaul at the top of the company comes after directors received an outside report its directors commissioned to look at its options-granting practices.

McGuire has been under pressure since the Wall Street Journal reported in March that he received stock options granted on the yearly low spots in the company's share price in 1997, 1999, and 2000 — something that would have only been obvious after the fact.

Backdating stock options isn't always illegal, but failing to disclose it can trigger tax and regulatory problems. Indeed, on May 11 UnitedHealth acknowledged a "significant deficiency" in its handling of stock options and said it may have to restate as much as $286 million in earnings for 2003, 2004, and 2005.

The company said McGuire had agreed to reprice his stock options to their yearly highs in 1994 through 2002 "and take any other appropriate action to eliminate any possible financial benefit from options-related issues identified in the report."

McGuire had $1.6 billion in exercisable options as of the end of 2005, before the repricing announced Sunday.

UnitedHealth has disclosed that the IRS has asked it for documents dating back to 2003 concerning stock options and other compensation for some executives. It has also been subpoenaed by the U.S. Attorney's Office for the Southern District of New York. It also said an independent committee of its board members was investigating its stock option programs from 1994 until the present.

UnitedHealth missed filing its audited quarterly results with the Securities and Exchange Commission in August.

McGuire became president and chief operating officer of what was then United Healthcare Corp. in 1989, and was named chairman and CEO in 1991. Through acquisitions he engineered UnitedHealth's rise from a regional health insurer into one of the largest managed care companies in the country.

McGuire has pushed for more efficiency in the delivery of health care by measures such as putting patient information in a magnetic strip on the back of insurance cards, and encouraging customers to use the Internet instead of live phone operators for tasks such as switching doctors.

Other companies ensnared in options problems have pushed out their CEOs in the past week. McAfee Inc. and CNet Networks Inc. both announced their CEOs would resign, and McAffee also fired its president.