Justice Department says it will end use of private prisons

DOJ will end use of private prisons

The Justice Department plans to stop using private prisons.

Deputy Attorney General Sally Yates said in a Thursday statement that she sent out a memo instructing officials to not renew contracts with prison operators or to diminish existing contracts.

"This is the first step in the process of reducing — and ultimately ending — our use of privately operated prisons," she said.

The news was initially reported by The Washington Post, citing the deputy attorney general's memo.

Shares of Geo Group and Corrections Corporation of America were originally halted on the news and fell more than 20 percent when they reopened. Both stocks were then halted again and again for volatility.

Geo shares were last down more than 43 percent, while CCA was down more than 51 percent. These massive downside moves are the largest drops ever seen in either stock since their IPOs in the 1990s.

The companies were the two largest publicly traded private prison operators, but have seen their market caps crater after the news.

A guard escorts an immigrant detainee from his 'segregation cell' back into the general population at the Adelanto Detention Facility. The facility is managed by the private Geo Group.
Getty Images

Earlier this month, the Office of the Inspector General at the Justice Department published a review of privately operated contract prisons. It found that, overall, "contract prisons incurred more safety and security incidents per capita than comparable [Bureau of Prisons'] institutions."

Yates also said that three weeks ago, the bureau ended a "private prison contract for approximately 1,200 beds." Today's statement highlights steps the bureau "has already taken to reduce [its] reliance on private prisons," she said. These actions have led to a decline in the number of inmates in contract prisons, about 195,000 compared to roughly 220,000 inmates at the high in 2013, according to the attorney general.

"Taken together, these steps will reduce the private prison population by more than half from its peak in 2013, and puts the Department of Justice on a path to ensure that all federal inmates are ultimately housed at bureau facilities," Yates concluded.

Between fiscal years 2011 and 2014, the Bureau of Prisons increased its spending on private prisons from $562 million to $639 million. But lately, the for-profit prison industry has come under pressure as Democratic presidential nominee Hillary Clinton has spoken forcefully about a desire to phase out private prisons as part of the U.S. criminal system.

This story is developing. Please check back for further updates.

— CNBC's Dina Gusovsky and Steven Kopack contributed to this report.