AUSTIN, TX – While the news cycle has focused on the fall of financial giant Lehman Brothers and other troubling signs concerning the nation's economy, articles about Lehman Brothers' history have largely ignored the fact that the company has been one of the largest, most consistent financial backers of the private prison industry. For years, Grassroots Leadership's Not With Our Money! campaign, in conjunction with student activists and allies across the country, has criticized this relationship.
Human rights advocates have long criticized the private prison industry for human rights violations and for using its influence to promote prison privatization and expanded incarceration. Recent reports that 1 in 100 Americans are behind bars have furthered charges that the private prison industry uses its leverage to ensure an ever-expanding prison market.
Lehman Brothers became something of a fairy godmother to the private prison industry, bailing out struggling private prison corporations for much of the last decade. Lehman Brothers underwrote billions of dollars in bonds and credit for private prison corporations, financed the construction of dozens of private and public prisons, and provided a safety net when for-profit prison companies fell into financial instability.
Lehman Brothers has financed major deals for the three largest private prison firms, Corrections Corporation of America (CCA), the GEO Group (formerly Wackenhut Corrections) and Cornell Corrections.
"It's unknown at this point how Lehman's demise will effect private prison corporations, but it's clear that the industry has lost both a major cheerleader and financial backer," said Bob Libal, past co-director of the Not With Our Money! campaign and current Grassroots Leadership Texas Campaigns Coordinator. "One thing is for sure: if another company picks up Lehman Brother's role as lead private prison financier and cheerleader, they should be prepared for a divestment campaign." In 2001, Not With Our Money! waged a successful campaign that led multinational Sodexho Marriott to divest its CCA stock; at the time, Sodexho was CCA's largest institutional shareholder.
For more than two decades, Lehman Brothers supported Corrections Corporation of America by supplying over one billion dollars to the company for expansion. In 2000, a Lehman-backed deal helped CCA avoid bankruptcy; since then, Lehman Brothers has played an essential role in CCA's survival and expansion. In 2003 Lehman Brothers, at a substantial profit, arranged a $785 million refinancing package for CCA.
In 2001, the same year that Houston-based Cornell Correction's CEO Steve Logan stated that "September 11 is increasing ... business," Lehman Brothers helped Cornell transfer prisons to affiliated businesses in an Enron-like accounting scheme that raised $173 million for the private prison company, and underwrote $43 million in additional stock.
In 2003, Lehman advised Wackenhut on a multi-million dollar spin-off of the company's corrections division, which was renamed the GEO Group. That same year, the company helped float more than $100 million in bonds for GEO Group. As recently as March 2008, GEO Group CEO George Zoley participated in a Lehman Brothers conference call and discussed why the company's private prisons were a good investment for Lehman.
The company's involvement in the private prison industry has come under increasing scrutiny. In a 2002 newsletter, May Va Lor, then co-director of Grassroots Leadership's Not With Our Money! campaign, said "Lehman Brothers is the number one financier of the private prison industry… Investment banks fund predatory loans, they fund globalization projects, they do horrible things — just pick one. But no other investment bank is as involved in the private prison industry as Lehman is." Not With Our Money! also warned of Lehman's risky and irresponsible business dealings as far back as 2002, noting the company's role in backing both private prison corporations and predatory lending companies.
In 2006, Lehman Brothers was pressured by students at the University of Minnesota, one of many colleges and universities where students advocated against bond underwriting deals with Lehman due to the company's private prison dealings.
Grassroots Leadership is a 28-year old southern-based national organization that works to defend democracy, to enhance the public good and to stop the erosion of the public sphere. Grassroots Leadership opposes the use of for-profit prisons, jails, and detention centers.
Bob Libal – (512) 971-0487