The Five Dumbest Things on Wall Street This Week

1. So Much for 20-20 Hindsight

UnitedHealth (UNH) CEO William McGuire had his moment of truth this week.

The Minnetonka, Minn., health insurer is saying farewell to its longtime chief. McGuire steered UnitedHealth from the brink of bankruptcy in the early 1990s to industry leadership, driving shares up an eye-popping 8,500% along the way. But the company conceded Sunday that it found evidence of widespread stock-option backdating under his reign.

"The board expressed its appreciation," UnitedHealth said Sunday, "for the extraordinary contributions made by Dr. McGuire over the past 15 years."

Of course, UnitedHealth has made extraordinary contributions to McGuire, too. This past spring, it came to light that McGuire was sitting on some $1.6 billion in unexercised stock options -- padded by grants made with the stock at annual lows. He is due to collect some $1.1 billion in pay and perks when he departs Dec. 1.

UnitedHealth initially claimed in April that its pay practices were "appropriate." But lawyers at Wilmer Cutler Pickering concluded after a six-month study that "senior management failed to ensure that the option-granting practices were appropriate."

In one case, the Wilmer Cutler report says, UnitedHealth effectively repriced a 750,000-share option grant to McGuire. The move triggered "substantial and onerous reporting obligations," with which UnitedHealth blithely "did not comply."

The report also cites a September 1999 announcement that McGuire and operating chief Stephen Hemsley had signed long-term employment contracts. The lawyers found that those deals, with the obligatory backdated-option sweeteners, weren't finalized till almost three months later.

The report says McGuire told investigators that he believes the grant dates "were selected without the benefit of hindsight." But, Wilmer Cutler concluded, "certain facts run contrary to this assertion."

Nothing new there.

Dumb-o-Meter score: 95. McGuire described the company in 1998 as "entrepreneurial in spirit, principled in thinking and innovative in action." Some principles.

To watch Colin Barr's video take of this column, click here.