AG's letter re: representation of STRS and OPERS & a possible "backroom deal"

Attorney General Marc Dann questions UnitedHealth Group review panel

February 7, 2007

The Honorable Kathleen Blatz
The Honorable Edward Stringer
c/o Paul R. Hannah, Esquire
Kelly & Berens, P.A.
3720 IDS Center
80 South Eighth Street
Minneapolis, MN 55402

Re: In re: UnitedHealth Group Inc. Shareholder Derivative Litigation; Case No. 06-1216 (D. Minn.)

Dear Justices Blatz and Stringer:

I write to you to express my dismay at your unwillingness to meet with me on February 1, 2007, as originally scheduled. I also strongly urge that you, as the Special Litigation Committee (“SLC”) of the UnitedHealth Group, Inc. (“UHG” or the “Company”) board, refrain from reaching a settlement with UHG’s recently ousted CEO, William McGuire.

As the Attorney General of the State of Ohio, I am the attorney for the Public Employees’ Retirement System of Ohio (“PERS”) and State Teachers’ Retirement System of Ohio (“STRS”), two of the Lead Plaintiffs in the derivative litigation pending in the District of Minnesota. PERS and STRS collectively own in excess of 5.6 million shares of UHG common stock worth more than $295 million. At its peak value, that stock was worth more than $360 million. Of course, this decline in value is attributable to the options backdating scandal in which the UHG board cavalierly abdicated its oversight responsibilities and improperly allowed McGuire to set his own compensation. Consequently, it appears that McGuire backdated more than $2.3 billion in options and received more than $1.6 billion in options and nearly $60 million in other compensation under an employment contract that was improper and void.

It is my understanding that the SLC believes it has authority to negotiate a resolution of the Company’s claims against McGuire. I strongly urge you to involve the derivative plaintiffs in that process. We caution you that the entire institutional investor, law enforcement, and regulatory communities are watching how you conduct your assigned task. Quite frankly, your conduct to date gives us pause to wonder exactly what is going on at UHG and, more importantly, who is truly looking out for the best interests of the Company and its shareholders.

Our outside counsel, Grant & Eisenhofer, together with Karl Cambronne, Esquire, and the Plaintiffs’ Coordinating Committee, had arranged a meeting with you that was to take place in Minneapolis on February 1. On January 31, your counsel cancelled that meeting when he learned that I intended to attend the meeting personally. This is inexcusable arrogance. At that meeting, I intended to pose a number of questions to you to address some of my concerns with the SLC investigation. Just by way of example, I would have asked you the following questions:

• Did the SLC, which purportedly holds all of the board’s authority to determine whether the claims asserted in this litigation should be pursued or not, authorize the motions to dismiss the action?
• Does the SLC have any reason or basis to disagree with the finding by Wilmer Cutler Pickering Hale & Dorr in its October 2006 report (the “WilmerHale Report”) that millions of stock options granted to McGuire, current CEO Hemsley and other executives were backdated?
• Does the SLC have any basis to dispute the fact that the grant dates for the options which the WilmerHale Report found to bear all the indicia of deliberate backdating were chosen by McGuire, and McGuire alone?
• Is a settlement with McGuire – the chief wrongdoer in this matter – being contemplated by either the Company or the SLC?
• Does the SLC have any reason to dispute that Hemsley received more than $700 million in backdated options, and if not, why did the SLC remain silent when Hemsley was appointed UHG’s new CEO?
• Why, when it is abundantly clear that backdating has taken place, does the SLC, which has already been working for seven months, need more time to complete its investigation?

Perhaps if our scheduled meeting had taken place, you could have allayed my fears – particularly with regard to the possibility that a backroom deal with McGuire will be negotiated. The late cancellation of the meeting on what appears to be pretext, however, leaves me even more gravely concerned that UHG’s best interests are not being scrupulously guarded.

I believe a meeting between us would be most beneficial for all concerned. It would present an opportunity to clear the air of the suspicion and doubt that has surrounded the Company’s and, frankly, the SLC’s actions in the past several weeks. I urge you to reconsider your refusal to meet with me and plaintiffs’ counsel and to schedule a meeting to take place as soon as possible. Please let our outside counsel, Jay Eisenhofer of Grant & Eisenhofer, know as soon as possible if you will meet with us and the other Plaintiffs’ counsel.

Very truly yours,

Marc E. Dann
Attorney General
State of Ohio

http://www.ag.state.oh.us/press/07/02/pr070207.asp

For more information contact:

Jennifer Brindisi, Attorney General’s Office, at (614) 728-5418