Thursday, June 01, 2006

A second shareholder has filed suit against Caremark Rx Inc. executives and board members over questions about the timing of stock option grants to senior executives.

Pirelli Armstrong Tire Corp. Retiree Medical Benefits Trust accuses them of breaching their fiduciary duties, as well as "abuse of control, gross mismanagement, waste of corporate assets and unjust enrichment" by backdating stock options to senior executives.

Caremark has denied backdating any options.

Last month, the Nashville-based disease management company said it had received a federal grand jury subpoena and a letter of informal inquiry from the Securities and Exchange Commission concerning its stock option grants. It said the SEC also wanted information related to the company's relocation program.

Pirelli's lawsuit notes that Caremark granted 1.25 million stock options to senior executives on March 1, 2005, which coincided with the stock's low price for the year.
There will be many more suits of this kind. Boards would be wise to get ahead of the curve.