WASHINGTON/NEW YORK (Reuters) - Shareholders in Corrections Corporation of America (CCA), whose value fell sharply following a federal government decision to phase out private prison contracts, sued the for-profit prison company this week alleging they were misled ahead of the government’s announcement.
In a complaint filed in federal court in the Middle District of Tennessee on Tuesday, the plaintiffs argued that CCA, the country’s largest private corrections company, should have disclosed that its facilities were less effective and less safe than government-run prisons.
The U.S. Justice Department used this argument when it announced last week it planned to gradually phase out use of private prisons.
News of the department’s plan caused CCA’s share price to fall 39.45 percent on August 18, the lawsuit alleged. The class action status requested includes anyone who held CCA stock between February 27, 2012 and August 17, 2016.
The company and lawyers for the plaintiffs in the case did not immediately respond to requests for comment.
The lawsuit claimed the company “made materially false and misleading statements” about the safety standards and rehabilitative services at CCA’s facilities, which were found by the Justice Department’s Inspector General to be less efficient than those offered by the Federal Bureau of Prisons. As of 2015, the company managed 65 facilities in 19 states and the District of Columbia, the complaint said.
The complaint did not allege that CCA had prior knowledge of the Justice Department’s decision before the announcement on cutting back use of private facilities.
Reporting by Julia Edwards in Washington D.C. and Mica Rosenberg in New York; Editing by Frances Kerry