One of the most powerful securities class-action law firms in the US has opened a new front in prosecutors’ investigation of the backdating of stock options.
The firm promises to file suits against executives and directors who allegedly manipulated stock option practices to guarantee the receipt of windfall compensation.
New York-based Bernstein Litowitz Berger & Grossmann, filed suit against UnitedHealth Group last week and signalled that it is ready to target more companies being investigated by the Securities and Exchange Commission and the US attorney’s office in the Southern District of New York.
The lawyers’ decision to take on the stock option scandal comes as the class-action securities industry is reeling from last week’s indictment of one of its most prominent players, Milberg Weiss, and two of its senior lawyers, after a six-year probe.
BLB&G,says law firms should be judged by their own conduct. The indictment could boost firms such as BLB&G if Milberg’s clients change lawyers.
As part of its legal action against UnitedHealth, five pension funds represented by BLB&G are asking a judge to freeze $2bn in unexercised stock options that were granted to the company’s chief executive and chief operating officer.
Gerald Silk, a partner at BLB&G said: “We’re basically asking the judge to take the key out of the getaway car until the backdating mess is sorted out.”
Mr Silk said he was discussing with clients potential litigation against another group that is being probed, Affiliated Computer, and others. John “Sean” Coffey, another BLB&G partner, says the backdating of options is a “very hot issue” that his institutional clients are “upset over”. An investigation by US authorities into whether executives and directors changed the effective dates on stock options to secure higher compensation widened last week after prosecutors issued subpoenas to companies. These included UnitedHealth, which said it was co-operating, and Vitesse Semiconductor, the chipmaker that fired its chief and two other executives as it widened its internal probe into the timing of stock-option grants. American Tower Corporation and RSA Security said they also received SEC letters of inquiry.
At the core of the BLB&G legal action are allegations that William McGuire, chairman and chief executive of UnitedHealth, and Stephen Hemsley, chief operating officer, breached their fiduciary duty when they, along with other executives, received stock options during the 1990s at “abnormally low and statistically anomalous exercise prices”.