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Economy

CoreCivic To Settle Shareholders Lawsuit For $56 Million

The sign at the entrance to the Otay Mesa Immigration and Detention Facility is pictured in San Diego, June 22, 2018.
Katie Schoolov
The sign at the entrance to the Otay Mesa Immigration and Detention Facility is pictured in San Diego, June 22, 2018.

CoreCivic says it will pay $56 million to settle a lawsuit by shareholders who accused the private prison operator of inflating its stock prices by misrepresenting the quality and value of its services.

The lawsuit was filed in 2016, when CoreCivic's stock fell after the U.S. Department of Justice directed the Bureau of Prisons to phase out contracts with private operators. The DOJ memorandum said privately run prisons have more safety and security problems than federally run prisons without significant cost savings. The class action was led by Amalgamated Bank, which said it lost $1.2 million when stock prices fell.

CoreCivic pointed out in court filings that the DOJ directive was rescinded under the Trump administration, and the company’s stock price went on to fully recover. The Brentwood, Tennessee-based company also argued that statements boasting of the quality and value of its services were of a generic nature and not fraudulent.

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CoreCivic said it agreed in principle to the payment in exchange for the dismissal of the securities fraud suit and full release of all claims. The settlement must still be approved by a judge. An attorney for the plaintiffs did not immediately respond to a request for comment.

"While we continue to believe the allegations in this case were without merit, we also believe that eliminating the risk, cost and distraction related to the litigation is in the best interest of CoreCivic and its shareholders,” company President and CEO Damon Hininger said in the Friday news release.

A jury trial had been scheduled to begin on May 10.

CoreCivic’s public statements to shareholders have said the company provides a high quality service at a lower cost than government-run facilities. The suit claimed CoreCivic executives knew those statements were false and that the company formerly called Corrections Corporation of America “ran unsafe, low quality prisons that caused multiple deaths and did not save money.”

CoreCivic had tried to have the case dismissed, but U.S. District Judge Aleta Trauger declined. In earlier rulings, she cited internal communications showing that CoreCivic executives knew of serious problems with at least some of their facilities and were privately concerned about losing contracts.

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In one example, after a federal audit was less critical than had been expected, a CoreCivic executive wrote, “What I’m shocked over is they totally overlooked the consequences of our staff vacancies. They mentioned staffing at the end but could have been much more critical.”

CoreCivic owns or manages 54 detention facilities, including one in Otay Mesa, with a combined capacity of over 75,000 beds through contracts with federal, state and local governments, according to its website.