Prison-Phone Owner Defends Buyout After Furor Over Rates

(Bloomberg) -- Platinum Equity LLC, one of the buyout firms that has come under fire for profiting from mass incarceration, has told some of its investors that it’s reviewing the practices of Securus Technologies Inc., a prison phone services provider it owns.

In a statement seen by Bloomberg that was sent to clients inquiring about the company, Platinum said it was “acutely aware” that Securus had engaged in practices that put the interests of correctional facilities above those of inmates, and said it is working to transform the business.

“Some of those practices had already been discontinued by the time we acquired the company,” Platinum said in the March letter. Others “are being reviewed to ensure that Securus serves not only the best interests of the corrections-facility customers, but balances that where possible against the interest of the incarcerated-inmate consumers.”

The statement comes at a time of increased scrutiny surrounding private equity firms that profit from correctional facilities and the pension funds, endowments and insurance companies that trust them to invest billions of dollars on their behalf. Beverly Hills-based Platinum is currently looking to secure commitments for its fifth flagship buyout fund, and social justice advocates are seizing on the opportunity to compel some of the public pensions that are considering investing to demand a moratorium on more prison-related acquisitions.

‘Major Concerns’

“Investors should have major concerns that Platinum Equity bought an asset that they were acutely aware had considerable ethical and moral issues,” said Bianca Tylek, the founder and executive director of Worth Rises, a non-profit that advocates against the commercialization of the criminal justice system. “Any future investments should be predicated on Platinum addressing Securus’s exploitative practices and not purchasing any other correctional companies.”

The pressure is part of a growing effort to pull taxpayer money away from certain industries, such as tobacco, firearms or fossil fuels, seen at odds with the public good. In February, the second largest teachers union in America encouraged pension managers to stay away from private equity firms that profit from mass incarceration. Some funds have already begun divesting public stock holdings of prison operators.

Platinum has made several changes since taking ownership of Securus in 2017, according to Mark Barnhill, the firm’s head of investor relations and author of the unsigned statement shared with clients. These included overhauling management, providing more transparency on rates, increasing the number of free calls provided during national emergencies, and investing in cybersecurity, he said in subsequent emails and a phone interview. He declined to comment on Platinum’s fundraising efforts.

Securus didn’t respond to requests seeking comment on its business practices prior to Platinum’s acquisition.

Troubled Past

Pensions for teachers in Pennsylvania and New York City are among the largest investors in the Platinum Equity Capital Partners IV fund that owns Securus, according to data compiled by Bloomberg from publicly available sources.

“As a limited partner in Platinum Equity, PSERS has no say in what companies Platinum decides to acquire,” Pennsylvania Public School Employees’ Retirement System spokesman Steve Esack said via email, adding that PSERS is satisfied with the responses it has received from the private equity firm. “We also do not have an investment policy that would restrict or limit investments.”

A spokeswoman for the office of New York City Comptroller Scott Stringer, who serves as investment adviser to the city’s five public pension funds including the Teachers’ Retirement System of the City of New York, declined to comment.

Headquartered in Dallas, Securus is no stranger to controversy. The company has been criticized for charging as much as $25 for a 15-minute phone call from local jails and for requiring inmates to pay extra fees to open, fund and close accounts.

It also used to require some facilities that installed its video-call products to restrict in-person visitation hours.

“That practice was discontinued in 2016, prior to our ownership, and we have directed management of the company to ensure that it is not resurrected in any new contracts,” Platinum said in the statement to investors.

The average cost of a phone call through Securus is currently around 15 cents per minute and has declined by 14% over the past year, according to Barnhill. Commissions that providers such as Securus pay back to the correctional agencies can account for over 80% of the rate charged to inmates in some jurisdictions. Without those payments, the average cost of a Securus call would fall to 10 cents per minute, he said.

Political Pressure

Private equity capital and cheap financing have fueled a wave of consolidation in the prison services industry over the past several years. With fewer opportunities to grow through takeovers and increased political pressure on local governments to conform to ESG standards, times for the industry aren’t as rosy as they used to be.

New York this month became the first major jurisdiction in the U.S. to make phone calls free for inmates, with the Department of Corrections agreeing to cover the cost of the service.

In April, Securus abandoned a plan to acquire smaller rival Inmate Calling Solutions LLC after the Federal Communications Commission determined the deal would have harmed competition in the industry. The Justice Department reached a similar conclusion. Securus and its main competitor, Global Tel*Link Corp., already control around 80% of the inmate telecommunications market, according to S&P Global Ratings.

“Consolidation in the industry has allowed them to maintain high calling rates,” said Michael Pidgeon, an analyst at S&P who said state-by-state regulation is one of the biggest risks facing the industry over the next few years. “There has been so much public outcry about this that there is a risk political pressure could snowball.”

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