Law360 (July 7, 2020, 10:20 PM EDT) -- The GEO Group Inc. was hit with a proposed class action Tuesday in Florida federal court alleging the private prison operator made misleading statements about its response to the COVID-19 pandemic, resulting in damage to investors after an article revealed woeful conditions at one of its halfway houses.
Plaintiff Steve Hartel, a Colorado resident, is seeking to lead a class of shareholders who bought the Boca Raton, Florida-based business's stock between Feb. 27 and June 16 of this year. The complaint, which also names GEO Group Chief Executive Officer George C. Zoley and Chief Financial Officer Brian R. Evans as defendants, alleges the company and top executives violated federal securities laws.
"As a result of defendants' wrongful acts and omissions, and the precipitous decline in the market value of the company's securities, plaintiff and other class members have suffered significant losses and damages," the complaint says.
The GEO Group describes itself as "the first fully integrated equity real estate investment trust specializing in the design, financing, development, and operation of secure facilities, processing centers, and community reentry centers in the United States, Australia, South Africa, and the United Kingdom." It owns or manages 126 facilities worldwide, encompassing approximately 94,000 beds, including projects under development, and has approximately 23,000 employees, according to a press release the company issued Tuesday announcing a quarterly cash dividend for its stock.
Hartel's suit points to a 7.8% drop in GEO Group's stock on June 17, the same day the website The Intercept published an article titled "GEO Group's Blundering Response to the Pandemic Helped Spread Coronavirus in Halfway Houses" that reported on details of a COVID-19 outbreak at the Grossman Center, a halfway house in Leavenworth, Kansas, operated by the company.
The article, which said the facility "was for weeks the hardest hit federal halfway house in the country" in terms of confirmed cases of COVID-19, quoted a resident who said the facility had done "absolutely nothing" to mitigate against the coronavirus other than suspending passes to allow residents to visit family, under orders from the U.S. Bureau of Prisons, according to the complaint.
The article also referenced photos of men in crowded bunks, some wearing masks but most without, and reported that residents said they were kept in the same areas as infected residents, had to clean the facility themselves and that staff members continued working despite feeling sick, the complaint says. Residents also told the website that GEO Group was slow to provide medical care.
This account stood in stark contrast to statements contained in several reports GEO Group filed publicly with the U.S. Securities and Exchange Commission, as well as statements company executives made in an April 30 earnings call with investors and analysts and a June 1 press release it issued touting its "comprehensive steps to address and mitigate the risks of COVID-19," according to the complaint.
The GEO Group's stock dropped by $1.03 per share and closed at $12.17 per share on June 17, according to the complaint. The stock, which is listed on the New York Stock Exchange, closed Tuesday at $11.49, according to multiple online reports.
The suit aligns the start of the class period with GEO Group's Feb. 27 filing of its 2019 annual report with the SEC in which the company touted receiving accreditation from several health organizations for achieving certain levels of health care policies and services.
The complaint quotes Zoley as saying on the April 30 earnings call that the company had taken comprehensive steps since the outset of the global pandemic and it had "experience for the implementation of best practices for the preventions, assessment and the management of infectious diseases."
"All of our facilities operate safely and without overcrowded conditions. All of our facilities have access to regular handwashing with clean water and soap, as well as ample hygiene and sanitation products. All of our GEO Group Secure facilities provide 24/7 access to healthcare," Zoley said, according to the complaint.
The complaint also cites nearly identical statements in the company's June 1 press release.
Hartel alleges that Zoley and Evans are liable for the company's alleged misrepresentations because they had authority to control the contents of its SEC filings, press releases and other marketing communications.
"Because of their positions with GEO Group, and their access to material information available to them but not to the public, the individual defendants knew that the adverse facts specified herein had not been disclosed to and were being concealed from the public, and that the positive representations being made were then materially false and misleading," the complaint says.
The suit seeks payment of damages suffered by Hartel and other proposed class members as a result of the acts alleged in the complaint as well as prejudgment and post-judgment interest and attorney fees and costs.
Hartel asserts that class treatment is appropriate given common issues and a large number of similarly situated investors, which he estimates number in the hundreds or possibly thousands.
Counsel for Hartel and representatives for GEO Group did not immediately respond to requests for comment late Tuesday.
Hartel is represented by Jayne A. Goldstein of Shepherd Finkelman Miller & Shah LLP, James M. LoPiano of Pomerantz LLP and Peretz Bronstein of Bronstein Gewirtz & Grossman LLC.
Counsel information for the defendants was not immediately available.
The case is Hartel v. The Geo Group Inc. et al., case number 9:20-cv-81063, in the U.S. District Court for the Southern District of Florida.
--Editing by Jack Karp.
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