CoreCivic shares dropped Monday after the company announced an agreement to settle a putative securities class-action lawsuit before it could proceed to a jury trial scheduled for next month.
Shareholders first filed suit against the company in August of 2016 in U.S. District Court of Middle Tennessee on the heels of a decline in stock prices, which is argued to have been in response to a U.S. Department of Justice memorandum mandating that the Federal Bureau of Prisons gradually stop holding contracts with private prisons.
CoreCivic has agreed to pay $56 million for the Grae v. Corrections Corporation of America et al. case to be fully dismissed, including all claims against the company and a group of current and former executives. These claims include but are not exclusive to allegations of inflating stock prices by misrepresenting the value of services.
“We are pleased to resolve this matter and put it behind us in order to focus on the company’s business,” CoreCivic President and CEO Damon Hininger said. “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.”
No admission of guilt or liability are necessary for any named defendants per the settlement proposal, but the proposal is still subject to negotiation. Moreover, the federal court to which the decision on class certification was appealed must also approve the agreement. These are considered formalities, however, as evidenced by Hininger’s statement.
The lead plaintiff among the shareholder class, Amalgamated Bank, alleged in its initial filing that CoreCivic hid quality concerns regarding inadequate safety and security without providing the level of rehabilitative services seen from federal prisons. Amalgamated claimed these supposed misrepresentations decreased the likelihood of the DOJ renewing or extending the company’s contracts.
When CoreCivic shares fell on the heels of the DOJ memo, Amalgamated claims to have lost $1.2 million. Federal Judge Aleta Trauger presided over the initial trial and ultimately denied certification to Amalgamated’s class of investors who claimed CoreCivic had misrepresented its standards.
Trauger originally said defendants couldn’t establish the argument that stock prices reflected all publicly available information; ergo, this meant investors didn’t need to prove reliance on a supposed misstatement. Yet the class also hadn’t proven that Yates’ report revealed any “hidden truth” not also in a public report from the office of the Inspector General.
Aleta said shares hadn’t actually declined until then-Deputy Attorney General Sally Yates made the announcement that the DOJ would reduce private contracts. The DOJ directive during Yates’ term was overturned under President Donald Trump, which led to CoreCivic’s stock price recovering, the company argued in court.
CoreCivic owns or runs 54 facilities that collectively hold more than 75,000 beds, and all are subject to contracts with local, state and federal governments. On Monday afternoon, the company’s shares (Ticker: CXW) were changing hands at $8.38, down 2.7 percent on the day. They have risen about 10 percent over the past six months.