NEW YORK (AP) - Integrity, like smiling, can be contagious. The same goes for the fast-and-loose attitude that produced the options-dating controversy now hanging over UnitedHealth Group Inc. and other companies.

Witness this week's disclosure by Vitesse Semiconductor Corp., as it sacked its chief executive, that the investigation into executive option grants has expanded to cover other issues including accounting for revenues and cash.

The cautionary tale here is that a lapse in judgment regarding options could be a sign of a corporate mind-set where corners are cut or procedures are lax.

Investors do appear to be spooked by the possibility that the options investigations at other companies may show backdating, which puffed up executive compensation, to be just the tip of a slick accounting pencil.

UnitedHealth's shares slumped again this week amid news that federal prosecutors have opened a criminal investigation into what the company has described as a "significant deficiency" in its handling of options. The IRS also has started a probe.

The stock has lost one-fifth of its value since mid-March, when an article in The Wall Street Journal raised questions about the options-granting practices at the Minnesota-based health insurer and five other companies.

Since then, UnitedHealth and several others have disclosed that proper accounting for options would have reduced past profit reports.

The actual amounts of money involved are relatively small, particularly for a company of UnitedHealth's size. Even so, the $15 billion drop in its market value would seem to indicate a few concerns beyond the direct financial impact of improper options accounting.

To that point, the troubles at Vitesse are particularly unsettling since the company has now expanded its investigation twice. Besides "issues related to the integrity of documents relating to Vitesse's stock option grant process," the company is examining some fairly basic aspects of daily business and accounting. These include issuing credits for returned merchandise and how those transactions were recorded, as well as the bookkeeping for payments and accounts receivable.

It is encouraging that Vitesse, based in Camarillo, Calif., has taken swift action to restore credibility, first placing CEO Louis R. Tomasetta and two top deputies on administrative leave and then firing them this past week. Similarly, Comverse Technology Inc. announced earlier this month that its CEO and two others had resigned amid a probe into options grants at that telecommunications software company, based in Melville, N.Y.

Still, it could be premature to conclude the worst is over at those companies. Conveniently, that point was driven home in recent days as Nortel Networks Corp., a poster child for serial accounting troubles, delivered its biweekly update on its perpetually delayed financial reports.

Nortel may be an extreme example, but its woes illustrate that investigations into specific accounting problems can turn into wide-ranging expeditions into managerial dysfunction.

From 2003 to 2005, nearly 2,000 public U.S. companies were forced to restate past financial reports to correct accounting inaccuracies. Roughly 300, or 15 percent, of those companies were repeat offenders, according to Glass Lewis & Co., an adviser to institutional investors. There were 72 companies that restated their results twice in 2005 alone. And during the three-year period, 42 issued restatements three separate times, while six companies revised their filings on four occasions.

For now, Wall Street's ever-optimistic stock analysts appear unfazed by the potential for deeper troubles at UnitedHealth. For example, the stock is rated a buy at Citigroup Corp., Merrill Lynch & Co., Bear Stearns & Co., Prudential Equity Group LLC and UBS AG.

Nor do analysts see much of a problem with the bewildering options jackpot granted to CEO William McGuire. Instead, some have bemoaned the potential ouster of an executive who is justly credited with transforming UnitedHealth from a minor player into a powerhouse, helping revolutionize the industry in the process.

McGuire currently holds 32.9 million options that were worth $2 billion at the end of 2005, but have since lost nearly $550 million in value. Those numbers don't reflect past gains realized by exercising options, including a transaction that brought him $136.7 million earlier this year.

"While the stock option compensation may appear excessive to many, we truly believe that Dr. McGuire has earned every penny of it," Prudential analysts wrote in a recent note. A Citigroup analyst delivered an analysis stressing the modest impact of any backdating on the value of McGuire's options, rather than any questions of integrity or excessive pay.

In one glimmer of sobriety, a Bear Stearns report said: "Bottom-line, this one really becomes somewhat of a management integrity call. We would construe a pattern of consistent backdating as essentially stealing from shareholders and frankly, we give this management team a much higher ranking for integrity and sophistication than that assertion would suggest. But admittedly, we are in the same position as everyone else, awaiting the outcome of the investigation."

More than likely, those findings will be limited to the topic of options dating. Given the widening troubles at Vitesse, investors can be excused for remaining a little leery.

_____________________________________________________

By BRUCE MEYERSON

Bruce Meyerson is a national business columnist for The Associated Press. Write to him at bmeyerson(at)ap.org

Copyright 2006 The Associated Press.