More lawsuits against our illustrious PBM
Two separate lawsuits claim company hurt investors by backdating stock options
"The backdating of stock option grants is akin to picking lottery numbers on the day after the winning numbers are announced," the Pirelli lawsuit states.
The lawsuits in U.S. District Court in Nashville were filed last week by Pirelli Armstrong Tire Corp. Retiree Medical Benefits Trust and New York shareholder Stewart Simon. They name as defendants the company, its top executives and the board.
Caremark, which operates a customer-service center in West Knoxville that employs 400 workers, was subpoenaed in May along with several other companies by the U.S. attorney for the Southern District of New York for records related to stock options.
At least 16 other companies are being investigated for similar transactions. Caremark officials have denied any wrongdoing.
Stock options are rights granted by a company to purchase shares at a certain price, allowing holders to benefit if the stock price rises. Prosecutors appear to be looking into whether companies had backdated stock option grants to their executives to coincide with low share prices.
"The backdating of stock option grants is akin to picking lottery numbers on the day after the winning numbers are announced," the Pirelli lawsuit states.
The Simon lawsuit claims that Caremark Chairman, President and CEO Mac Crawford and Executive Vice President Edward Hardin acted "to reap hundreds of millions of dollars in unlawful windfall profits at the expense of the company."
The Pirelli lawsuit also names Howard A. McLure, senior vice president and chief operating officer. Both lawsuits include the Caremark board members as defendants.
"The entire Caremark Board and senior management participated in the wrongs," the Pirelli suit states.
The company didn't immediately return phone calls Tuesday.
The lawsuits list millions of stock options granted to top executives. Crawford's options include 3.875 million in 2000 and 1.35 million since 2003. Hardin got 400,000 stock options in 2000 and 574,000 since 2003.
As of October, Crawford has realized at least $185 million by exercising some options and appreciation rights and has exercisable options valued at $184 million, the Simon suit claims.
Among the options granted by Caremark were 1.25 million shares to senior executives and 18,000 shares to each board member dated March 1, 2005. That was the same day the stock price hit a 52-week low.
The Pirelli lawsuit states that "certain Caremark executives" - it doesn't specify which ones - did the backdating.
"If an option is backdated to a day on which a market price was lower than the price on the day the option is granted, then the employee pays less and the company gets less money for the stock when the option is exercised," the Simon petition states.
During Crawford's eight-year tenure as CEO, Caremark's stock price has increased 280 percent.
Shareholders lost $1.4 billion in equity when the subpoenas were announced May 18, and shares fell from $48.89 to $45.55, the Pirelli lawsuit states. Investors also will be hurt because the company faces legal costs from the investigation and likely will have to restate its earnings, the suits claim.
The lawsuits seek unspecified damages, reimbursement to Caremark for all bonuses issued during a period for which the company will restate its finances, and a shareholder vote on new corporate governance policies.
Shares of Caremark rose $1.72, or 3.7 percent, to close at $47.97 on the New York Stock Exchange. The stock has traded between $41.02 and $53.90 during the past year.
posted by Kathie Bracy at 11:52 AM
<< Home