By Jim Schutze
By Rachel Watts
By Lauren Drewes Daniels
By Anna Merlan
By Lee Escobedo
"It pissed me off as a taxpayer," he recalls.
CSC started as Esmor Correctional Service Corp., founded by New York slumlord Morris Horn, who has since died, and his business partner James F. Slattery. The pair owned "one of the most notorious welfare hotels in New York," which the city eventually condemned, according to The New York Times.
Horn and Slattery's new company's first entry into managing a detention facility was in a federal halfway house in Bedford-Stuyvesant, New York. They took over the house after its former manager was accused of sexually assaulting inmates, according to The New York Times.
CSC grew in the '90s at a rapid pace, winning contracts to manage prisons, Immigration and Naturalization Service detention centers and juvenile facilities nationwide. During those years, the company's financial fortunes soared, despite run-ins with the government agencies.
In June 1995, asylum seekers and illegal immigrants held at the CSC-managed facility in Elizabeth, New Jersey, rioted, damaging the place so badly that it had to be closed. A month later, the INS issued a scathing report on the company's management of the detention center. "Poorly paid, ill-trained guards physically and verbally abuse detainees, shackling them with leg irons, roughing them up and waking them without reason," the report stated. Diane McClure, a former CSC senior vice president who is now executive of a rival company, testified in a lawsuit filed by former inmates at the center that training records were altered and the INS was overcharged for transportation costs.
In the late '90s, the company ran into similar problems in Florida.
Dade County officials terminated contracts when they discovered CSC had deliberately kept delinquents beyond their release dates to pocket extra money. The local school district paid the company to teach kids in its custody; CSC was accused of collecting money for days when it provided no schooling.
"They are a completely greedy company. They have a Costco approach to meaningful intervention," says Marie Osborne, an assistant public defender in Dade County who went to court to get 11 of her indigent clients removed from a CSC facility.
The Florida Department of Juvenile Justice conducted a study of the facility and found a lack of training, inadequate background checks on employees and inadequate food service. Employees had even helped stage fights between 13- and 14-year-olds while their peers watched and referred to these bloody scrabbles as "The Main Event" in memos, according to CSC employees' testimonies.
Dallas County officials do not have to read about out-of-state litigation, however, to learn of CSC's problems. Tarrant County commissioners terminated CSC's contract to operate a 370-bed boot camp for young adult offenders in Mansfield after one employee pleaded guilty to charges of official oppression, and the nurse at the camp was indicted in the death of an inmate.
Michael Zahn, a former maintenance worker at the boot camp, allegedly intimidated three young women into disrobing, showering and touching themselves while he watched. All three girls had been sexually abused before they were committed to the camp. In February, a judge awarded them $2.8 million in damages. This spring, CSC agreed to settle the case for an undisclosed amount.
During the trial, state Senator Chris Harris testified that Russell Rau, a CSC senior vice president in charge of business development, told him that the three plaintiffs "got what they wanted." Rau denies making the statement.
In January, an 18-year-old prisoner at the boot camp, Bryan Alexander, died of antibiotic-resistant pneumonia caused by a staphylococcus infection. Alexander's father alleged the boy had received improper medical treatment. In May, a Tarrant County grand jury indicted CSC nurse Knyvett Jane Reyes on negligent homicide and manslaughter charges. Jack Strickland, the lawyer who represented both her and the company, believes that government officials, some with personal ties to inmates at CSC facilities, have unfairly targeted the company and its employee. "We've had agencies falling all over themselves to investigate this. It's really a whole incestuous matter," he says.
Alexander's parents have filed a $755 million wrongful death suit against CSC.
The lawsuits against CSC are mounting to the point analysts say that they are threatening the corporate bottom line. Once a Wall Street darling, CSC has fallen on hard times. For the quarter ending in June 2001, the company's revenues dropped 16 percent compared with the same period in the previous year. CSC suffered a net loss of $421,000 for the quarter, compared with the $1.3 million it earned in profits the previous year. The company's stock traded recently for around $2 a share, down from a high earlier this year of $5.
Andrew May is a financial analyst who covers the prison-management industry for Jefferies & Co., an investment bank. Like many of his peers, he no longer puts the company's stock on his recommended buy list. He believes that CSC doesn't have the financial might to expand in the federal prison system, where more capital is needed to build facilities, and that the state-dominated juvenile prison markets offer only low profits.
But Slattery, now CSC chairman and chief executive officer, betrayed none of those concerns in his comments in the 1999 annual report. "I firmly believe that the fundamental reason for our success is attributable to the determination of our people to excel in every aspect of the business," he wrote. Slattery declined to be interviewed for this article.