Coverage: Private prison company stocks blasted after Justice Department ruling

Corporate Corrections of America Inc. and GEO Group saw their stock prices plummet on Thursday after the Justice Department announced that it would phase out using private prison operators.

Hui-Yong Yu and Chris Strohm of Bloomberg News had the news:

Corrections Corp. fell 35 percent to $17.57 at the close of trading, the real estate investment trust’s biggest drop since its initial public offering in 1997. GEO Group plummeted 40 percent to $19.51, also the largest decline in its 22-year history as a publicly traded company. The stocks pared losses of about 50 percent as analysts said the impact may be less severe than initially expected. Corrections Corp. climbed to $18.85 in after-hours trading after saying that today’s decision relates to facilities that represent just 7 percent of its business. GEO Group rose to $20.72.

The Federal Bureau of Prisons will phase out the use of privately operated prisons with the goal of ultimately ending contracts with them, according to an order today from Deputy Attorney General Sally Yates. Private prisons “simply do not provide the same level of correctional services, programs and resources” and “do not save substantially on costs,” and there’s less need for such facilities as the federal prison population declines, she said.

“I am directing that, as each contract reaches the end of its term, the bureau should either decline to renew that contract or substantially reduce its scope in a manner consistent with law,” Yates said in her memo. The Federal Bureau of Prisons accounts for 25 percent of the U.S. Justice Department’s budget annually, Yates wrote.

Jon Swaine, Oliver Laughland and Jana Kasperkevic of The Guardian noted that the private prisons don’t provide the same level of service:

The decision immediately prompted a sharp decline in the share prices of America’s biggest private prison companies.

Yates said in her memo that research had found private prisons “simply do not provide the same level of correctional services, programs, and resources” and “do not save substantially on costs” either. Essential government education and training programs for prisoners “have proved difficult to replicate and outsource” in the private sector, she said.

The decision was announced days after the Department of Justice’s inspector general released a damning investigation report. It found instances of inmate-on-inmate assaults were 28% higher in contract prisons than in government-run facilities, and that the confiscation of contraband mobile phones occurred eight times more frequently.

Federal inmates in private prisons were found to be nine times more likely to be placed on lockdown than those at other federal prisons, and were frequently subjected to arbitrary solitary confinement.

Carrie Johnson of NPR reported that advocates have pushed for the move for years:

Marc Mauer, executive director of The Sentencing Project, nonetheless said the Justice Department announcement represented a “major milestone in the movement away from mass incarceration.”

“It has been a stain on our democracy to permit profit-making entities to be handed the responsibility of making determinations of individual liberty,” Mauer said in a prepared statement. “Today’s action moves us closer to a moment when government can once again assume this important responsibility.”

Jamie Fellner, a former prison researcher for Human Rights Watch, said, “when the government does delegate, it’s done a bad job of supervising” and adjusting the contracts accordingly.

“When private prisons fail as the inspector general suggests was going on with these particular ones, it’s not just somehow because private business can’t do corrections,” Fellner said. “The principal overriding reason is … [the Bureau of Prisons] failed to require contractually core best practices and standards; two, failed to supervise; and three, it failed to enforce the contracts. It just kind of keeps rolling over.”