Private Prisons’ End Draws Investors to Court

NASHVILLE (CN) — A class claims in court that Corrections Corporation of America didn't tell investors that the federal government was unlikely to renew its private prisons contract, causing stock to drop 39 percent when the news broke.

The U.S. Department of Justice announced last Thursday that it would begin phasing out private prison contracts, after an audit found they have more safety and security problems than government-run prisons.

In a federal class action filed Tuesday, lead plaintiff Nikki Bollinger Grae says Nashville-based Corrections Corporation of America "made materially false and misleading statements regarding the company's business, operational and compliance policies."

Specifically, CCA allegedly failed to disclose that its private prisons were less efficient than government-run facilities, its rehabilitative services were less effective, and the Justice Department was unlikely to renew its contracts with the company.

When the government's decision was announced last week, CCA stock immediately dropped $9.65, or 39.4 percent, to close at $17.57, according to a federal class action filed Tuesday in Nashville.

Grae's complaint alleges violations of the Exchange Act. In addition to CCA, the lawsuit also names executives Damon Hininger, David Garfinkle and Todd Mullenger as defendants.

"At the time of the purchases and/or acquisitions by plaintiff and the class, the true value of CCA securities was substantially lower than the prices paid by plaintiff and the other members of the class," the 34-page complaint states. "The market price of CCA securities declined sharply upon public disclosure of the facts alleged herein to the injury of plaintiff and class members."

The proposed class includes anyone who held CCA stock between Feb. 27, 2012 and Aug. 17, 2016.

Grae is represented by Paul Kent Bramlett in Nashville.

CCA currently still manages 65 prisons in 19 states and Washington, D.C., according to the lawsuit.

The company said via email that it cannot comment on pending litigation.

But in a press release filed Friday, CCA said it "will continue to provide a valuable public service to our government partners," including the Bureau of Prisons.

"We have been a keen observer of the BOP's declining inmate population over the last three years," Hininger, the company's CEO, said in a statement. "Nonetheless, we are disappointed with the BOP's decision to reduce its utilization of privately operated facilities to meet their capacity needs, and believe our value proposition remains strong."

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