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Members of Congress Investigate Private Equity Firms that Own Companies Providing Prison Services
by Matt Clarke
On September 30, 2019, U.S. Senator and presidential candidate Elizabeth Warren and U.S. Representatives Mark Pocan and Alexandria Ocasio-Cortez sent letters to five private equity firms – BlueMountain Capital Management, H.I.G. Capital, American Securities, Apax Partners and Platinum Equity.
The firms own companies that provide support services to prisons, including health care, food services and prisoner telephone services. The letters accused the companies of charging exorbitant prices for substandard goods and services while reaping windfall profits, noting that they received over $40 billion in taxpayer funds each year plus money from prisoners and their families. [See: PLN, Aug. 2019, p.22].
The letters from members of Congress expressed “concerns about the rapid spread and effect of private equity investment in many sectors of the economy – including the correctional facility support services industry.” They noted that private equity firms had a history of purchasing companies, stripping them of assets while loading them with debt, and extracting exorbitant fees before selling them for a profit. Other concerns included the role of the private equity firms in consolidation of prison services companies and a steep decline in the quality of services provided. They noted that “three companies – GTL, Securus Technologies, and Inmate Calling Solutions, Inc. – provided telephone service in between 1,141 and 1,668 correctional facilities across the United States and collectively controlled an estimated 65 percent to 79 percent of the correctional phone market, with GTL alone controlling about half of the market.” This allowed the companies to charge rates as high as $25 for a 15-minute call in some areas. All three of the companies are owned by private equity firms.
Likewise, the letters noted that the two largest providers of health care to prisoners, Corizon Health, Inc. and Wellpath, are owned by private equity firms. Together they provide medical services to hundreds of thousands of prisoners in 36 states. Wellpath had annual revenue of about $1.5 billion in 2017, while Corizon earned about $1 billion. The two companies have been sued around 1,500 times in the past five years over allegations of medical malpractice, neglect and wrongful injury or deaths.
The letters noted that the “privatization and consolidation of the commissary and food services sector – steered by private equity investment – has allowed private companies to rake in significant profits despite delivering low-quality services.” They mentioned that where the companies had contracts for both the commissaries and food services at correctional facilities, there was a double profit motive to provide low-quality – even rotten or maggot-ridden – food to prisoners, to force them to purchase overpriced commissary items.
The letters asked the firms to provide the disclosure documents and information enumerated in the Stop Wall Street Looting Act – pending legislation that was introduced to hold private equity firms responsible for the conduct and debt of the companies they control, and to increase transparency by requiring the disclosure of fees, returns and political expenditures. The members of Congress also requested information on prison support services companies owned by the five private equity firms. Finally, they sought information about any prior investigations into violations of federal or state law or regulations by the companies.
Sources: warren.senate.gov, bloomberg.com