Skip navigation

PLN extensively quoted on DOJ's decision to stop using private prisons

Fusion, Aug. 20, 2016.

August 19, 2016

What the DOJ’s new private prison policy could mean for the prison divestment movement

By Casey Tolan

For years, activists have urged companies, pensions, and universities to divest from private prisons—with only limited success. But yesterday, when stocks of the two biggest private prison companies in the country fell more than 35%, might signal a new frontier in the divestment movement.

The companies, Corrections Corporation of America and the GEO Group, saw their respective stock nosedive after the Department of Justice announced it would phase out its use of private prisons, ending contracts as they expired and shifting inmates out of privately run facilities.

Executives of the two companies say they will see only a limited impact from the DOJ decision, and tried to reassure spooked investors in conference calls Friday morning. But activists say the huge falloff gives them a powerful new argument in favor of divestment.

“This is by far the most devastating thing that’s happened to the private prison industry,” said Alex Friedmann, an activist with the Human Rights Defense Center, a criminal justice reform group. Years of reports about increased violence and poor living conditions in their prisons has had little impact on the companies’ finances, he noted, “but a simple memo…tanks both companies’ stocks.”

CCA has contracts for three prisons that will be affected by the DOJ decision, and GEO has contracts for five. But most of their business still comes from state private prisons and federal immigration detention centers, which will not be affected by yesterday’s decisions. Stocks rebounded slightly today, although they are still significantly down from before the DOJ announcement.

More than 90% of private prison company stock is owned by big banks like Wells Fargo, Bank of America, and Merrill Lynch. But many other institutions, including university endowments and state pension funds, also have holdings in them.

At least in the short term, the institutions who agreed to divest from the companies—including Columbia University and the University of California—are financial winners. According to student activists, Columbia owned more than 230,000 shares of CCA stock before it divested in June 2015. That means that the university would have lost about $2,194,000 on Thursday if it had decided to keep its stock.

“I’m sure they’re breathing a sigh of relief that they got out when they did,” Friedmann said. “They dodged a bullet.”

If more states and federal agencies follow the DOJ’s lead and decide not to renew private prison contracts, it could spell more bad news for the two companies. A Hillary Clinton presidential win would also likely lead to a drop in the companies’ stocks, as she has vowed to close privately run immigration detention centers. That means that pro-divestment activists have an opportunity to argue for their policies based on financial arguments just as much as moral ones.

“After getting hammered, hopefully they reconsider these investments,” Friedmann said. “It’s the only way that they’re likely to understand, is that it hits their bottom line. It doesn’t take reporting on deaths, riots, it takes a hit to their pocket.”

Jamie Trinkle, an activist with the group Enlace, which runs a national campaign advocating for prison divestment, said the DOJ decision was an opportunity for activists to push their cause. “We hope that the BOP precedent paves the way for state and other federal agencies to follow,” she said, including in ending contracts for privatized re-entry and health services.

In hastily planned conference calls with investors on Friday morning, executives for GEO and CCA tried to paint a rosy picture of their businesses. They noted that the DOJ decision does not impact privately run immigration detention centers run by the Department of Homeland Security or federal jails run by the U.S. Marshals Service—not to mention the bevy of state private prisons across the country. CCA noted that the prisons affected by the new policy amount to just 7% of its total revenue, and GEO officials talked about new investments in Australia.

“We think there’s been an overreaction to the news about the BOP contracts and we think in time this will correct itself and we’ll go on with our organic growth strategy,” George Zoley, the founder and CEO of GEO, said on the call. He also added that even if sentencing reform being debated in Congress reduces the country’s total prison population, he sees a growth opportunity in halfway houses.

Both companies also said they thought there were deficiencies in an inspector general report detailing increased violence and negligent cost-savings in private prisons, a report that precipitated the DOJ decision.

The investors and analysts calling in quizzed executives from both companies about profit margins, dividends, and contract dates, without at all mentioning those underlying issues or how they affected the inmates living in the prisons. “To them, there’s no human component to it,” said Friedmann, who is himself a former CCA inmate. “It’s all about money.”