1. Nice Deduction, Watson

UnitedHealth ( UNH) changed its tune this week.

The Minnetonka, Minn., health insurance giant has come under fire for profligate and possibly illicit executive pay. The furor started in March when The Wall Street Journal reported that UnitedHealth may have backdated options to give recipients bigger gains. The paper also said CEO William McGuire was sitting on a $1.6 billion unexercised stock-option hoard as of year-end.

UnitedHealth responded by authorizing not one, but two probes of the matter, one by the company and one by a special independent panel of the board. UnitedHealth also suspended option grants to top executives. But the company insisted it believed that its grant process was "appropriate."

Judging by Wednesday's quarterly report, UnitedHealth may be having second thoughts about that line now. The 10-Q noted that the Securities and Exchange Commission has opened an options inquiry that could lead to "regulatory fines or penalties or other contingent liabilities."

UnitedHealth stressed that its internal inquiries aren't complete, but results so far indicate the company may need to restate financial results over the last three years to wipe out some $286 million in profit.

"The results of the review to date indicate that the company may be required to record adjustments to non-cash charges for stock-based-compensation expense in periods prior to January 1, 2006," UnitedHealth writes in the quarterly report. "If any such non-cash adjustments were deemed necessary, it may also result in compensation related to certain exercised stock options, previously thought to be deductible, to be nondeductible under Section 162(m) of the Internal Revenue Code."

Potential restatements? Possible tax trouble?

Somehow, "appropriate" isn't the word that comes to mind here.

Dumb-o-Meter score: 93. "We must strive to achieve the highest standards in all aspects of our corporate governance and compensation," McGuire said last week. We'll see what comes of that.

To view Colin Barr's video take on UnitedHealth's entry in Five Dumbest this week, click here .

Cisco Carnival
This ride could be bumpy

2. Turning Point

The momentum has turned at Cisco ( CSCO).

The San Jose, Calif., networking giant posted a strong third quarter Tuesday afternoon. Shares of the company, already up 27% for the year going into Tuesday's action, put in a giddy 5% rally in early after-hours trading.

CEO John Chambers was quick to play to the crowd on the call. Chambers said that while other information technology companies have warned of a slowdown, "Our business momentum is actually increasing." The contrast wasn't lost on investors who had just been hit by a profit warning at Dell ( DELL).

Momentum is so strong at Cisco that Chambers used the term 26 times during the call, according to a transcript posted on NetworkingStockBlog.com.

But as the call went on, another kind of momentum -- the one driving Cisco's shares higher -- stalled out. Investors headed for the exits once it became clear that Cisco wouldn't raise sales guidance for the fourth quarter ending in July.

The stock dropped 4% Wednesday and slid 3% more Thursday as analysts got back to fretting over the company's growth prospects. And despite the abundant momentum at Cisco, Chambers' comments on the future weren't terribly enlightening.

"The momentum we are seeing in orders and anticipating, with the appropriate caveat, to see in our future makes us comfortable that we're not only winning vs. most of our competitors in the marketplace, but also anticipating and positioning our customers effectively for market transitions," Chambers explained.

Unfortunately, this week's market transition seems to be one many Cisco shareholders weren't anticipating.

Dumb-o-Meter score: 91. Sharing Cisco's momentum this week was H&R Block (HRB), which fell 3% after warning for the second time this year of weaker-than-expected earnings.

Morgan Stanley Mailstrom
Check your 'sent' basket

3. Spring Cleaning

Morgan Stanley ( MS) has put its stamp on yet another email scandal.

The giant investment house this week agreed to pay $15 million to settle SEC charges that the firm shirked its duty to share internal emails with government investigators.

The SEC says that over five years, Morgan Stanley "failed to produce tens of thousands of emails" in two conflict of interest probes -- one covering Wall Street research and another on initial public offering practices. The firm also "failed to conduct diligent searches for back-up tapes, including tapes that were accessible in the firm's offices and its storage facilities," the SEC says.

The agency says the firm's actions "compromised" the two investigations, which led to multimillion-dollar settlements with several Wall Street firms. The back-up tapes alone have yielded 14.3 million emails that Morgan Stanley hadn't previously searched, the SEC says.

Morgan didn't admit to or deny wrongdoing, though it did agree to institute new policies for preserving documents and to hire a consultant to review its efforts.

Of course, this isn't the first time Morgan Stanley has run into trouble with old emails. In November 2002, it and four other Wall Street firms each paid $1.65 million to settle charges they failed to keep proper email records. Morgan agreed as part of that settlement to review its email-retention policies.

And just last year a Florida judge socked Morgan Stanley with a partial-default judgment after Morgan repeatedly failed to produce emails in a fraud suit brought by billionaire Ron Perelman. Morgan is appealing the $1.45 billion judgment in that case, in which some of the missing tapes eventually turned up in a Brooklyn closet.

"Don't Become the Next Morgan Stanley," San Francisco's Institute for Spam and Internet Public Policy warned big companies in the wake of the Perelman setback.

Well, maybe Morgan Stanley just can't help it.

Dumb-o-Meter score: 88. Morgan Stanley says it's glad to have the matter behind it. Good luck there.

4. Cold Rinse

Whirlpool ( WHR) is washing its hands of a hefty chunk of its Maytag buy.

Benton Harbor, Mich.-based appliance-maker Whirlpool said Wednesday it would cut 4,500 jobs as it closes three less-efficient Maytag washer/dryer plants. Factories in Herrin, Ill., Searcy, Ark., and Newton, Iowa, will close by 2007, as will some administrative offices, including Maytag's former headquarters in Newton. Whirlpool bought Maytag March 31.

"We are taking these actions to rapidly restore the competitiveness of the Maytag brands," said CEO Jeff M. Fettig. "This is an important step in our integration process that will allow us to drive continuing performance improvements and will better align our brands, products and operations with the markets we serve domestically and globally."

The cutback will come as a blow to Maytag's home state of Iowa and slash Maytag's stand-alone premerger workforce by about a quarter. But all isn't lost. Whirlpool insists that "about 1,500 new positions will also be created at other Whirlpool locations, resulting in a net total elimination of 3,000 positions when all changes have been completed."

Well, the spin cycle had to start some time.

Dumb-o-Meter score: 85. "Details on the number and location of new positions created at other Whirlpool locations will be announced in the near future," the company hedges.

Overstock, Good Times, Come On!
We're gonna celebrate subpoena party with you

5. Dear Prudence

The party rolls on at Overstock.com ( OSTK).

This week the Salt Lake City-based online closeout retailer got a Securities and Exchange Commission subpoena. Overstock says the subpoena covers a "broad range" of documents, including those tied to the company's short-selling allegations.

It's not often that a company applauds a regulatory inquiry, but Overstock CEO Patrick Byrne did just that. "I may be the first CEO in history to celebrate receiving an SEC subpoena," he said in a press release Tuesday. "I believe our capital markets are broken in a deep way, our system of corporate voting and governance is a hoax, the savings of Americans are being drained through our financial system's fissure of unsettled trades, and the system appears to be cracking around Overstock.com."

Of course, last year Overstock filed a lawsuit alleging a wide-ranging conspiracy to manipulate its share price. Overstock alleges that research firm Gradient Analytics was in cahoots with short-sellers, including Rocker Partners, which owns a small stake in TheStreet.com (TSCM), publisher of this Web site. Both Rocker and Gradient have denied wrongdoing.

TheStreet.com and James J. Cramer, its co-founder and major shareholder, were subpoenaed in February in connection with an SEC investigation of Gradient following Overstock's allegations. The SEC has agreed that it will not, at this time, seek to enforce the portions of the subpoenas issued to the company and other media firms, including Dow Jones ( DJ), that concern communications between journalists and their sources.

Overstock's subpoena disclosure came just a day after the company agreed to raise $17 million by selling stock to unidentified investors. "Several parties have approached us regarding putting additional capital into the business, and we decided that it would be prudent to take it," Byrne said in a release issued after the close of trading Monday.

But just two days later, Overstock apparently decided it would be even more prudent not to take it. The company offered Tuesday to terminate the stock sale, and the purchaser agreed, Overstock said late Wednesday. Overstock shares tumbled 6% Thursday.

No word on whether Byrne was celebrating that, too.

Dumb-o-Meter score: 82. One thing Overstock apparently isn't doing is updating its investor relations Web site. "Has Overstock been subpoenaed?" puzzles one entry in the Frequently Asked Questions section. "No. There is no need to subpoena us: we are cooperating fully with various agencies."

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