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$14 Million Settlement in U.S. Corrections Corporation Pension Plan Suit

In accordance with a July 29, 2002 ruling by U.S. District Judge Jennifer B. Coffman, as many as 700 former guards who worked at private prisons in Kentucky operated by U.S. Corrections Corp. could share in settlement of $14 million or more. In her 49 page opinion, Coffman held that Milton Thompson and Robert McQueen, both top executives at U.S. Corrections, had mismanaged an employee pension fund. A special master was appointed to assess damages.

U.S. Corrections operated several private prisons in Kentucky: Marion Adjustment Center in Marion County; River City Correctional Center in Louisville; Lee Adjustment Center in Lee County; and Otter Creek Correctional Center in Floyd County, until it was bought by Corrections Corporation of America (CCA) in 1998. (Separately, CCA reached a $575,000 settlement with the plaintiffs before trial.)

Evidence showed that in 1993 Thompson and McQueen created an employee stock option plan (ESOP). They then used the ESOP to borrow $34.4 million in order to acquire two-thirds of U.S. Corrections stock in an attempt to buy out the company's cofounder, J. Clifford Todd. (Todd later received prison time after he confessed to paying a former Jefferson County Jail official approximately $200,000 in bribes.)

Attorney Douglas Richards of Lexington, who represented the guards, said "The whole idea of an ESOP is to share the wealth. That's the whole idea of having the employees be owners." He went on to say that in this case "there was no way that could happen because the ESOP got burdened with too much debt. They paid too much for it."

In 1996, J. Whitney Co. investors bought one-third of U.S. Corrections stock paying guards at the Marion Adjustment Center between $25,000 and $30,000 in cash for their shares, loaned the company $60 million and infused $20 million into its equity, all on the condition it dissolved its ESOP. In 1998, shareholders were also paid cash for their stock.

Richards said he expects any damages to match the amount the Marion guards received. "It's a substantial amount of money for these people - the difference between having a plausible retirement and not for some of them."

Source: The Courier Journal (Louisville)

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