Who Owns Private Prison Stock?

https://www.prisonlegalnews.org/news/issue/22/5/

The nation’s two largest for-profit prison companies, Tennessee-based Corrections Corporation of America (CCA) and Florida-based GEO Group (GEO), are publicly traded on the New York Stock Exchange. Other private prison firms, including Management & Training Corporation (MTC), Community Education Centers (CEC), LaSalle Southwest Corrections and Emerald Correctional Management, are privately-held and thus do not have public stock.

As of July 2015, CCA had issued approximately 117 million shares of stock with a market cap of $4.05 billion, while GEO had issued around 75 million shares with a market cap of $2.76 billion. So who owns the vast majority of stock in these two companies? The answer is not everyday people or individual investors, but rather other corporations – banks, mutual fund management companies and private equity firms – as well as public employee retirement systems.

In fact, around 92.4% of CCA’s stock was owned by 300 institutional investors while 91.1% of GEO Group stock was owned by 272 institutional investors at the end of July 2015. In some cases, the same institutional investors held stock in both companies.

The largest owner of CCA stock was Vanguard Group, Inc., with 16.79 million shares valued at $578.9 million, followed by Vanguard’s Specialized-REIT Index Fund, a mutual fund, with 8.8 million shares. Other top institutional investors included Managed Account Advisors with 6.4 million shares, London Co. of Virginia with 6.13 million shares and Epoch Investment Partners, Inc. with just over 6 million shares.

CCA’s ten largest institutional investors owned approximately 67.7 million shares in the company, or almost 58% of the company’s total issued stock. Banks that are heavily invested in CCA include the Bank of New York Mellon Corp. with 2.46 million shares, and Wells Fargo & Company with 1.24 million shares.

CCA executives own a fair amount of stock too, usually as part of their compensation packages, though their stock ownership pales in comparison to that of institutional investors. CCA board member Joseph V. Russell owned 204,306 shares as of February 2015, while the company’s CEO, Damon Hininger, owned 181,833 shares as of March 16, 2015. CCA board member Thurgood Marshall, Jr., son of the late U.S. Supreme Court justice (and FBI informant), owned 42,391 shares as of March 30, 2015, and CCA executive vice president Harley G. Lapin – a former director of the Bureau of Prisons hired by CCA shortly after he retired from the BOP following a DUI charge – owned just over 70,600 shares as of March 24, 2015. [See: PLN, May 2011, p.20]. https://www.prisonlegalnews.org/media/issues/05pln11.pdf

Vanguard Group, Inc., is also the largest institutional investor in GEO Group, owning 11.43 million shares; Vanguard owns another 5.5 million shares through its Specialized-REIT Index Fund. Other top institutional owners in the company include Blackrock Fund Advisors with 4.9 million shares, Eagle Asset Management with 2.92 million shares, and Fidelity Small Cap Discovery Fund and Fidelity Management and Research Co., each with 2.4 million shares.

GEO Group’s top ten institutional holders, including mutual funds, owned around 37.4 million shares, or close to 50% of the company’s total issued stock. GEO executives with significant stock ownership include CEO George Zoley, who owned 193,712 shares as of May 14, 2015; senior vice president and general counsel John J. Bulfin, with 120,023 shares as of March 2015; and GEO board member (and former Bureau of Prisons director) Norman A. Carlson, who owned 34,894 shares as of June 8, 2015.

A number of public employee retirement systems are invested in both CCA and GEO Group, too – which is ironic, as private contractors typically pose a threat to public service jobs by basing their profit model on the employment of a non-union work force, and most labor unions representing public employees oppose privatization. Specifically, unions representing public prison staff, such as the American Federal of State, County and Municipal Employees (AFSCME) and Service Employees Int’l Union (SEIU), oppose private prisons.

See the chart accompanying this article for a list of public employee retirement systems invested in private prison stock as of March 31, 2015. Public retirement systems in at least 18 states own stock in CCA and/or GEO Group, totaling over 2.5 million shares in CCA and 1.11 million shares in GEO. At current stock prices as of the end of July 2015, those public retirement system holdings were worth $88.6 million and $41.3 million, respectively.

But who owns private prison stock as individual shareholders? That is, do federal, state or local lawmakers, or corrections officials, or judges, or other public employee stakeholders in our criminal justice system own shares of CCA or GEO Group? That’s hard to say – literally. While institutional investor ownership is a matter of public record, most individual shareholders own stock through brokerage firms, mutual funds, retirement accounts or other investment vehicles, not directly; thus, it’s difficult to connect them to specific stock ownership.

Further, although headquartered in Tennessee, CCA is incorporated in Maryland. Under Maryland state law, MD Corp. & Assn. Code § 2-513 (2013), only shareholders who own “at least 5 percent of the outstanding stock” of a company may inspect and copy its stock ledger – i.e., its list of shareholders. Since CCA has around 117 million shares of outstanding stock, an investor would have to own about 5.85 million shares (currently valued at over $200 million) before they could obtain a copy of the company’s shareholder list.

As a Florida corporation, GEO Group is required to allow investors to inspect and copy its shareholder list upon request, pursuant to § 607.1602(2)(c) of the Florida Business Corporation Act. The request must be made “in good faith and for a proper purpose,” the purpose must be described with “reasonable particularity,” and the records to be inspected must be “directly connected with the shareholder’s purpose.”

PLN managing editor Alex Friedmann, who owns a small amount of CCA and GEO stock as an activist investor, which allows him to attend the companies’ annual shareholder meetings and file shareholder resolutions, requested and obtained a copy of GEO’s shareholder list at the company’s last annual meeting on April 29, 2015. [See: PLN, June 2015, p.56].

However, Florida law prohibits shareholders from selling or “otherwise distribut[ing]” any information or records obtained from the company for reasons that are not related to the proper purpose specified when requesting the records, with a fine of $5,000 applicable for violations of that provision. As a result, GEO Group’s shareholder list cannot be distributed without violating Florida law and incurring civil penalties.

Thus, the individual shareholders who own stock in both CCA and GEO remain shrouded in secrecy – much like private prison companies themselves, which have a long history of being non-transparent and lacking public accountability even though almost all of their revenue is obtained from government contracts paid with taxpayer funds.