(Bloomberg) — UnitedHealth Group Inc. Chairman Stephen Hemsley and three senior executives made a combined net gain of $101.5 million from stock sales made over a four-month period before the public was informed of a federal antitrust investigation learned.
Most read by Bloomberg
The sales occurred between Oct. 16, a week after the largest health insurer in the U.S. reportedly became aware of the Justice Department’s investigation, and Feb. 26, the day before Bloomberg News and others published reports on the investigation. The stock fell after the investigation became widely known.
There is no indication in the documents relating to the transactions that the trades were executed in accordance with the planned trading plans. UnitedHealth said officers and directors must obtain approval to trade shares, and trading is limited to certain windows that often open after earnings reports. The transactions in question have been approved, a spokesman said. The company reported its third-quarter results on October 13.
According to John C. Coffee Jr., a corporate governance expert at Columbia Law School, a company’s general counsel would typically declare a blackout banning trading in the face of a sensitive investigation. “It appears that this did not happen,” he said in an email at UnitedHealth.
The DOJ is examining whether UnitedHealth’s acquisitions have consolidated its position in some markets in a way that violates antitrust laws, according to a person familiar with the investigation who asked not to be identified as part of a nonpublic investigation. The agency has reportedly been examining potential monopolies in the managed care industry since at least mid-2023.
UnitedHealth has not specifically acknowledged the investigation and would not say when Hemsley and the others were informed about it. Asked about the deals, a spokesman for the insurer said: “These directors and officers followed our protocols and received company approval.”
UnitedHealth declined to make Hemsley, the other people involved in the transactions or its general counsel available for interviews, and a spokesman said they had no comment beyond the company’s response.
The company says in regulatory filings that it is subject to “routine, periodic and special investigations, audits and reviews” by various state and federal agencies, including the DOJ.
Disclosure question
Shares of UnitedHealth fell 5.2% in two trading sessions from Feb. 27 to 28 following extensive financial media coverage of the investigation. It was first reported Feb. 26 in the Examiner News, a local publication in New York state. As of Wednesday’s close, the stock was down about 15% so far this year, compared with an 8% gain for the S&P 500 Index.
Whether the investigation should have been disclosed to shareholders depends on whether it is considered material, said Charles Elson, founding director of the Weinberg Center for Corporate Governance at the University of Delaware.
The fact that stocks fell after the news leaked “would suggest some materiality to investors,” he said. UnitedHealth says all material information is included in its regular filings.
Stock sales by top executives are typically reviewed by a company’s general counsel, Elson said. They are considering whether the company needs to disclose additional information to the market before the trades take place, he said.
“The question is, was the investigation considered material when they first learned about it?” Elson said.
A cyber attack on the company’s Change Healthcare subsidiary is also weighing on the stock. The attack crippled critical data and payment systems and caused chaos across the healthcare system.
UnitedHealth operates the largest U.S. health insurer, UnitedHealthcare, and a growing network of clinics, surgery centers, home care providers and other services through its Optum division. Hemsley has served as chairman since stepping down as chief executive officer in 2017 after more than a decade at the helm.
On October 17 and December 5, Hemsley exercised a portion of his stock options that were set to expire in 2024. He sold the shares he had purchased the same day, netting him $84.9 million, according to the filings.
According to Bloomberg calculations, Brian Thompson, CEO of insurance unit UnitedHealthcare, exercised options and sold shares on February 16, netting him $15.1 million. Days later, Chief Accounting Officer Tom Roos sold about $450,000 worth of shares.
Chief People Officer Erin McSweeney exercised options and sold shares on Oct. 16 for a net gain of $1.09 million, filings show.
Hemsley’s options were set to expire in February and November 2024, the filings show. The options held by Thompson and McSweeney still had several years to expire.
While it’s not unusual for executives to regularly sell stocks, Hemsley rarely sold shares during his tenure as CEO. Starting in 2020, he began unloading at irregular intervals: three times this year and again in 2021, then once in 2022, the documents show. Its net proceeds from each transaction ranged from around $13 million to up to $70 million. The Oct. 17 transaction, which netted him $55.7 million, is among the largest he has made in recent years.
Hemsley remains a significant UnitedHealth shareholder, with more than a million shares worth more than $450 million, held directly and in trust funds, according to data compiled by Bloomberg. Each of the three managers also holds shares in the company.
McSweeney and Roos have occasionally sold stocks in recent years. This is the first year Thompson has sold shares since he became CEO of the insurance division in 2021, at which point he was required to begin reporting his transactions.
– With assistance from Leah Nylen.
Most read by Bloomberg Businessweek
©2024 Bloomberg LP