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Private prison shares drop after Homeland Security weighs detention change

Immigrants wait for medical attention during 'sick call' at the Adelanto Detention Facility
John Moore | Getty Images

Shares of private prison companies fell Monday after another federal agency said it would review use of private contractors for detention facilities.

Corrections Corporation of America and GEO Group declined more than 7 percent and 3 percent, respectively, in afternoon trade. CCA recovered some of its losses and ended the day 4 percent lower, while GEO maintained its 3 percent decline.

Department of Homeland Security Secretary Jeh Johnson released a statement saying he is directing the Homeland Security Advisory Council's chair, Judge William Webster, to establish a subcommittee to "review our current policy and practices concerning the use of private immigration detention and evaluate whether this practice should be eliminated."

The two publicly held prison operators briefly commented on the DHS review Monday afternoon.

"We've worked with the federal government to provide solutions to pressing immigration challenges for more than 30 years, and we welcome this review of our long-standing relationship," said Corrections Corporation spokesman Steve Owen, in an email to CNBC.

And in a press released issued Monday afternoon, GEO Group CEO George Zoley said the company is "confident that this independent review will show that GEO has provided needed, cost effective services that have resulted in significantly improved safety outcomes for the men and women in ICE's care and custody."

The DHS move follows the Department of Justice's Aug. 18 announcement that its Bureau of Prisons will begin phasing out the use of private contractors for federal prisons.

After the DOJ's announcement, private prison stocks had lost up to 50 percent of their value on trading before bouncing back. Analysts called the market reaction to that announcement overblown.

"I asked that the Subcommittee consider all factors concerning ICE's detention policy and practice, including fiscal considerations," Johnson said, in the Monday statement.

The subcommittee will provide the report to both Johnson and and the Director of U.S. Immigration and Customs Enforcement by Nov. 30.

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