In the latest coronavirus outbreak-related securities class action lawsuit to be filed, a plaintiff shareholder has filed a securities class action lawsuit against The GEO Group, a publicly traded private corrections facilities operator, alleging that the company misled investors about the effectiveness of its COVID-19 response. The complaint alleges that the company’s “inadequate” procedures subjected residents of the Company’s halfway houses to significant health risks. The company’s share price declined following news reports of a COVID-19 outbreak at one of the company’s facilities. A copy of the plaintiff’s complaint can be found here.
GEO is a real estate investment trust that develops and operates prisons and other incarceration facilities. Among other facilities, GEO operates the Grossman Center, a halfway house in Leavenworth, Kansas. On June 17, 2020, the Intercept published an article entitled “GEO Group’s Blundering Response to the Pandemic Helped Spread Coronavirus in the Halfway Houses” (here), about a COVID-19 outbreak at the Grossman Center. The article reports that Grossman Center residents contracted the illness while working at a nearby meat packing plant and that the virus then spread to other residents. The Intercept article reported that the Grossman Center “was for weeks the hardest hit federal halfway house in the country.” The article characterized GEO Group’s response as “blundering” and reported further “that the virus spread not in spite of the facility’s efforts to contain it, but because of it.” According to the article, the Grossman Center continued to keep its residents in overcrowded conditions without enforcing personal protective measures even as COVID-19 diagnoses at the facility increased.
On July 7, 2020, a plaintiff shareholder filed a securities class action lawsuit in the Southern District of Florida against GEO and certain of its directors and officers. The complaint purports to be filed on behalf of a class of investors who purchased the company’s securities between February 27, 2020 and June 16, 2020.
The complaint references a number of general statements in the company’s SEC filings prior to the coronavirus outbreak about the company’s facilities safety and protocols. The complaint also references several statements the company made after the outbreak, specifically referencing the outbreak and detailing the company’s response.
For example, the complaint references statements the company’ CEO allegedly made in the company’s April 30 conference call, in which the CEO specifically referenced the outbreak and said, among other things, that “we have taken comprehensive steps to address and mitigate the risk of COVID-19 across all our facilities and programs” and that “all of our facilities operate safely and without overcrowded conditions” with “ample hygiene and sanitation products” and “24/7 access to health care.” The complaint also references the company’s detailed statements about its response to the coronavirus outbreak in the company’s May 6, 2020 filing on Form 10-Q and in a separate June 1, 2020 press release.
The complaint also references and quotes extensively from the June 17, 2020 Intercept article. The complaint alleges that on June 17, after the article appeared, the company’s share price declined 7.8 percent in response to the news in the article.
The complaint alleges that the defendants made misleading statements or failed to disclose that: “(i) the GEO Group maintained woefully ineffective COVID-19 response procedures; (ii) those inadequate procedures subjected residents of the Company’s halfway houses to significant health risks; (iii) accordingly, the Company was vulnerable to significant financial and/or reputational harm; (iv) as a result, the Company’s public statements were materially false and misleading at all relevant times.”
The complaint alleges that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and seeks to recover damages on behalf of the plaintiff class.
By my tally, the complaint against GEO represents the 16th COVID-19-related securities class action lawsuit that has been filed since the outbreak began earlier this year. The lawsuit against GEO shares a number of similarities with earlier lawsuits filed against the cruise line companies, Norwegian Cruise Lines and Carnival Corporation, in that in each three of the lawsuits the complaints include allegations both about the companies’ statements about their response to the outbreak as well as about the companies’ alleged responsibilities for the spread of the virus within their facilities.
These recurring kinds of allegations suggest that a number of companies potentially could be susceptible to similar claims if their facilities become associated with the spread of the virus. Any business responsible for the safety of large groups of individuals potentially could experience these same kinds of problems, including not only prisons and cruise ships, but also hospitals, adult living facilities, food processing plants, schools, movie theaters, other entertainment businesses (such as casinos and sports teams), airlines, perhaps even restaurants and other hospitality businesses (theme parks, etc.). In each case, companies’ actions and statements prior to an outbreak at their facilities will be scrutinized by opportunistic plaintiffs’ lawyers seeking to exploit the health incident as the basis for claims against the responsible companies and their executives.
The 16 coronavirus-related securities suits filed in the four months since the first case was filed is not, in the context of historical U.S. securities suit filing patterns, a massive amount of litigation. However, the COVID-19-related suits have slowly but steadily continued to come in. The continued spread of the disease and the recent alarming increase in the number of cases not only increases the number of businesses whose operations will directly affected by the outbreak, but also extends and expands the disruptive impact the outbreak is having on businesses’ finances. The grim news of the disease’s continued spread carries with it a number of significant implications; among many other things, the continued spread increases the likelihood that we will continue to see coronavirus-related litigation – including coronavirus-related securities suits – for some time to come.
It is probably worth noting that prisons are particularly challenging facilities within which to try to manage the spread of a highly contagious infectious disease. Anyone wanting insight into the problems involved will want to read the June 22, 2020 New Yorker article about the spread of the coronavirus in a state penitentiary in Arkansas (here).