Last month, the D.C. Zoning Commission held 20 hours of hearings on a proposed private prison in Ward 8. As commissioners watched, supporters and opponents duked it out over why the Corrections Corporation of America (CCA) should or should not be allowed to open the facility. No one, however, asked whether the company was financially healthy enough to build the prison in the first place.

Since mid-May, the stock of CCA’s parent company, Prison Realty Trust, has plummeted from a high of $31 a share to just $10 a share at the end of last week. The price collapse came in the wake of May filings with the Securities and Exchange Commission (SEC) that revealed that CCA was running an $80 million deficit when it merged with Prison Realty in January.

Since May 26, at least four separate class-action suits have been filed against Prison Realty Trust by aggrieved shareholders. The suits allege that CCA founder and CEO Doctor Crants—who is also the chair of Prison Realty—and his son D. Robert Crants III, president of Prison Realty, fraudulently inflated the value of the companies’ stock before the two merged last year. The suits also allege that company management misled investors in a proxy statement about CCA’s fiscal health in order to win approval for the merger from CCA shareholders.

One suit, filed by Arkansas attorney Steven Cauley, alleges that during late 1998 and early 1999—a time when the national crime rate reached a 25-year low—CCA and Prison Realty were spending millions of dollars to open new prisons without inmates to fill them, causing the company to lose a substantial amount of money.

Prison Realty, a real estate investment trust also founded by the senior Crants, bought CCA in January, turning it into a private company that would manage prisons owned by the realty company. The merger was controversial among shareholders, who filed a lawsuit to block it. That case was settled, allowing the merger to go through in January. Nonetheless, rumors started early this year that the company was suffering a decline in occupancy rates at its prisons and that the federal government was contemplating a freeze in contracts with the company.

On May 21, Doctor Crants issued a statement assuring investors that the rumors weren’t true. Crants said the company’s supply of inmates was as plentiful as ever. But the Arkansas lawsuit, filed five days later, alleges that “Crants’ assurances that [Prison Realty] was ‘actually doing very well’ were outright lies.” In early May, Prison Realty revealed in its quarterly SEC filing that it would be infusing CCA with $86 million so that CCA could meet all its obligations.

The news prompted Prison Realty’s stock collapse. A financial analyst warned investors that the company’s management was unreliable. Jerry Doctrow, of Legg Mason Securities, told news wires that “people are debating whether these guys are incompetent or thieves.”

CCA’s financial troubles could doom its prospects of winning the federal Bureau of Prisons contract for the 1,200-bed Ward 8 prison, whose construction has sparked much local debate. Bureau of Prisons spokesperson Todd Craig says that contractors’ fiscal health will be a salient factor in the bureau’s decision. “They need to be able to perform the contract for the length of the award period successfully by operating a safe, secure, and humane facility so that the public safety is not endangered,” says Craig.

CCA’s finances could also affect the 2,200 D.C. inmates already housed in the firm’s facilities. If CCA and Prison Realty were to go belly-up, the District would be forced to take over management of a prison in Youngstown, Ohio, and the Correctional Treatment Facility, which is next to D.C. General Hospital in Southeast. As part of its contract with the District, CCA has set aside money for such an event. “We would have to staff them and run them,” says Darryl J. Madden, a public information officer with the D.C. Department of Corrections. “You cannot contract out your constitutional responsibility.”

Madden says he was unaware of CCA’s current financial straits, but notes that the company is unlikely to go belly up because of its size. CCA manages 81 prisons with 71,000 beds—53 percent of all private prison space nationwide. Madden says CCA was selected to house D.C. prisoners in part because it is the nation’s largest private prison company.

CCA’s local attorney, former D.C. Councilmember John Ray, referred calls about CCA’s finances to the company’s Nashville, Tenn., headquarters. CCA spokesperson Susan Hart did not return a call for comment. CP