National Public Radio
March 25, 2011
Within the $3 billion private prison industry, GEO Group is the nation's second largest for-profit prison operator. One of its prisons, which is the subject of an NPR News investigation, is now being investigated by the Department of Justice, and a civil rights lawsuit alleges that juvenile inmates are being held in "barbaric and unconstitutional conditions."
A Corporate Corrections Giant
On any given day, there are 1.6 million people serving sentences in state and federal prisons. Eight percent of them are in facilities operated by private companies. In the federal detention system, more than 16 percent of detainees are held in private lockups.
This proportion is projected to grow. According to industry leader Corrections Corporation of America, no state has allocated money to build new state-run prisons in the last year because of budget crises. So some state governments are turning to the private sector to house their prisoners. The private corrections industry maintains that it can build and start up prisons faster, and incarcerate inmates more cheaply than state-run facilities.
Based in Boca Raton, Fla., GEO — formerly Wackenhut Corrections -— is competing with CCA for new contracts. Since 2009, GEO has acquired 7,600 new prison beds, a growth of 10 percent, according to a GEO annual report.
Expansion By Diversification
GEO — which is traded on the New York Stock Exchange — is diversifying more than its competitors, seeking international contracts for prisons in Australia, South Africa and the United Kingdom. At home, it's also following the money into new lines of the corrections business.
The current trend in American criminal justice is to move away from incarceration toward cheaper alternatives like supervised release and treatment. So GEO is buying smaller companies with contracts in psychiatric care, civil immigration detention and electronic ankle monitoring for low-level offenders.
After borrowing cash for each new purchase, GEO's debt grew to $1.5 billion by January, and its credit rating was downgraded to B+.
NPR requested an interview with GEO to discuss its performance, but Pablo Paez, vice president of corporate relations, said in an email that the company declined to comment.
Assessing Its Acquisitions
In August, GEO bought Cornell Companies, America's third largest private prison operation. The acquisition included the troubled Walnut Grove Youth Correctional Facility in Mississippi, which is the focus of the NPR report.
GEO has had a rocky reputation in the youth prison business. In 2007, the Texas Youth Commission canceled a contract with GEO to manage the Coke County Juvenile Justice Center after auditors conducted an unannounced visit and found rampant mismanagement.
Barclays Capital, an investment firm that tracks the private prison industry, advised GEO on the Cornell purchase. Manav Patnaik, an analyst at Barclays, says GEO did not necessarily want the Mississippi youth facility. "If they could acquire Cornell without it, they would have. They got it because it was a package deal," he says.
But Patnaik also calls the purchase a "no-brainer" because it included existing revenue streams.
Lawsuits and Justice Department investigations, such as those focused on Walnut Grove, aren't more than a "headline risk," he says. At worst stocks dip on the day of bad press, just to float up again.