Prison Realty Trust of Nashville, the parent of prison manager Corrections Corporation of America (CCA), faces at least eight shareholder lawsuits over fees it paid to CCA since Jan. 1 that weren't disclosed until mid-May.
Meanwhile, the price of the real estate investment trust's stock continues a 17-month decline, and it faces higher than expected costs on a smaller than planned bond issue.
CCA owns and operates the West Tennessee Detention Facility at Mason from which two Montana inmates escaped last month. The Tennessee Highway Patrol and the Shelby and Tipton County sheriff's departments's work in the seven-day search for the inmates cost $67,000 to $72,000, officials estimated.
During the last full week in May, at least eight law firms filed suits against Prison Realty Trust in Nashville courts, bidding to represent shareholders in class actions against the company.
"On May 14, 1999, Prison Realty disclosed that it would retroactively increase the management fees paid to CCA by approximately $80 million," said lawyers from Wechsler Harwood Halebian & Feffer of New York, one of the law firms that filed suit.
On May 17, executives said costs for building and marketing jails increased. They said as of Jan. 1, they began paying CCA at the rate of $39,000 a year per bed, up from the $35,000 listed in the merger documents.
From $19.75 on May 14, the price of the stock fell to $13.25 on May 26, when the first of the suits was filed. It had been $22.125 on May 10, after the profit report was released but before the quarterly report to the SEC was filed.
Prison Realty also ran into difficulty with a debt issue they put out early this month. The company filed to sell $300 million in bonds, hoping to pay a 9.25 to 9.5 percent rate of interest on the debt. On June 4, when the issue came to market, only $100 million was sold and it carried an interest rate of 12 percent. On that day, Prison Trust shares fell another 14 percent in value.
I have counted 9 law firms to date that have announced their intent of filing a class action suit against PZN. See yahoo news relating to PZN. The 9th firm announced today. What a mob of lawyers! Among all the speculation, the sound analysis, the debate, and the poison, I continue to search for a small bit of good news. Maybe we will be up 1/16 today. Ah yes.
What a circus! And they will be fighting tooth and nail to see who is the magic firm who gets to handle the actual class action suit. Let's all e-mail them with the suggestion that they could sue Paine Webber instead.