$56 Million Settlement in CoreCivic Securities Violation Lawsuit
by David M. Reutter
Private prison operator CoreCivic, formerly known as Corrections Corporation of America (CCA), paid $56 million to settle a class action lawsuit alleging it violated securities laws that resulted in a loss to stock holders.
The lawsuit was filed August 23, 2016, on behalf of the class of stock holders of CoreCivic, which trades on the New York Stock Exchange under the ticker symbol “CXW.” The class consisted of persons who held CCA stock between February 27, 2012 and August 17, 2016. The class specifically excluded CCA and CoreCivic officers named as defendants.
At issue were allegedly materially false and misleading statements issued during the class period. The civil complaint cited statements made in Annual Reports CCA filed with the Securities and Exchange Commission. A 2012 report noted that 40-43% of CCA’s revenue was derived from contracts with the federal government through operation of prisons and detention centers.
CCA also boasted that, as of December 10, 2010, the American Correctional Association (ACA), “an independent organization of corrections industry professionals that establishes standards by which a correctional facility may gain accreditation,” had accredited 85% of its facilities. “We believe that this percentage compares favorably to the percentage of government-operated adult prisons that are accredited by the ACA,” the report stated.
Other reports continued the theme of “high standards” that governed the operation of CCA’s federal facilities. CCA specifically listed “the ACA, The Joint Commission, the National Commission on Correctional Healthcare, the Occupational Safety and Health Administration, federal, starts, and local government codes and regulations, established correctional procedures, and company-wide policies and procedures that may exceed those guidelines” that it met or exceeded.
In 2014 and 2015 reports, CCA said, “We are committed to equipping offenders in our care with the services, support, and resources necessary to return the community as productive, contributing members of society.”
The facade fell off on August 18, 2016, when Deputy General Attorney Sally Yates announced the Department of Justice had decided to end its use of private prisons. “[T]ime has shown the [private prisons] compare poorly to our own Bureau facilities. They simply do not provide the same level of correctional services, programs, and resources,” Yates said in making the announcement. Private prisons “do not save substantially on costs; and as noted in a recent report by the Department’s Office of Inspector General, they do not maintain the same level of safety and security.”
Those statements came as no surprise to PLN readers, for we have regularly reported the deficiencies of services and security in CCA and CoreCivic prisons for over 31 years now. They, however, came as a shock to the stock market.
Following Yates’ announcement, CCA’s stock “fell $9.65, or 39.45%, to close at $17.57 on August 18, 2016,” the complaint alleged. The “precipitous decline in the market value” caused the class to suffer “significant losses and damages.”
CoreCivic President and CEO Damon Hininger said the company was glad to put the litigation behind itself. He emphasized that CoreCivic believed the allegations in the lawsuit “were without merit.”
The class and CoreCivic agreed on April 15, 2021 to settle the lawsuit for $56 million, which includes attorney fees and costs. The settlement was greeted cheerfully by the stock market, as seen by the 3.5% gain in CoreCivic’s stock price after the it was announced.
The outlook for CoreCivic and the private prison industry took a hit with the Biden administration in the White House. The Trump administration reversed course on the end of private prison contracts from the government. Ordering the federal officials to not renew private prison contracts was one of the first acts President Biden made upon taking office. Whether anything actually comes of that remains to be seen. The class action investors who filed the suit are primarily hedge funds, union pension funds and other institutional investors looking to turn a buck on mass incarceration. This settlement will help ensure they don’t lose money betting on the business of caging people for profit. See: Grae v. Corrections Corporation of America, USDC, C. Dist. TN, Case No. 3:16-cv-02267.