Troubled Companies Made Him Billions. a Prison Phone Investment Made Him Enemies September 8, 2019
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cc Sunday, September 8, 2019 latimes.com/news Troubled companies made him billions. A prison phone investment made him enemies By LAURENCE DARMIENTO TIMES STAFF WRITER Tom Gores has made himself one of the richest men in Los An- geles buying castaway, often ob- scure businesses that he overhauls and unloads for big profits. That formula worked to perfec- tion, for example, when his private equity firm acquired steel distribu- tor PNA Group for an $18-million investment, cleaned house, made related acquisitions and sold the bulked-up company for more than $300 million, not including debt. But with his latest purchase of a troubled asset, the 55-year-old billionaire has found himself in a harsh spotlight. Detroit Pistons owner Tom Gores throws T-shirts into the stands during a 2016 home game. The $1.6-billion acquisition (Gregory Shamus/Getty Images) of Securus Technologies has put The decision to acquire the business move after a lengthy exo- Gores in control of a leading pro- company in 2017 has raised eye- dus to the suburbs led by prior vider of telephone services to in- brows since the Detroit Pistons ownership. mates — and a poster child for an owner seemed an unlikely buyer. Gores is being targeted by ac- industry widely condemned as a The prior year he drew glowing tivists who are demanding reforms racket, given rates that can top a headlines for leading a cam- at Securus and have even pressed dollar a minute. paign to raise at least $10 mil- pension funds to stop investing in The Beverly Hills private equi- lion amid the water crisis in Flint, his Platinum Equity buyout firm. ty titan has waded into a campaign Mich. — a majority black commu- And although the activists haven’t against mass incarceration and nity where he grew up that has been able to starve Gores of capi- what activists call the “prison in- been devastated by auto-industry tal, they are not letting up, threat- dustrial complex” — companies consolidation. And he’s been ening to make their campaign that operate or service correctional praised for his commitment to De- more personal by taking it to crim- facilities, profiting off dispropor- troit, where he’s funded charities inal justice advocates in Detroit tionately poor and minority pris- and relocated the Pistons, a shrewd and athletes in the NFL and NBA, oners and their family members. But impatient critics charge Platinum has not moved fast enough during its nearly two years of ownership, and Securus is still charging outrageously high rates — with a 15-minute call costing more than $10 at hundreds of jails — while profiting off additional fees. It’s not a new controversy. In- mates, families and advocacy groups have for decades protested the high price of calls, typically paid by family members who open online accounts with Securus and other telecoms. Detroit Pistons owner Tom Gores, center, watches a game against the Toronto Raptors Facing pressure, the Federal in Detroit in 2018. (Gregory Shamus/Getty Images) Communications Commission in 2013 capped charges at 21 whose players are known for being Platinum says it has begun re- cents per minute for interstate calls outspoken. forms at the suburban Dallas tele- from all types of facilities, though Gores, in an interview with The com, replacing top management fees for simply adding money to Times, said he knew his firm was and reducing already declining an account can add to the cost. courting “headline risk” when it phone rates by 14% in the last year Charges have come down sharply decided to acquire Securus, but he to an average of 15 cents per mi- in some state prisons. Securus saw the company as a solid busi- nute, inclusive of all fees. Gores signed a contract with Illinois that For a guy who owns the Detroit Pistons and is very philanthropic and supports education, what have you, it’s not a good place to be. LLOYD GREIF, L.A. INVESTMENT BANKER ness where Platinum could act as a also said that his investment was charges inmates less than a penny “change agent.” He admits being not predicated on expensive calls, a minute for U.S. calls. taken aback by the activists’ cam- since rates were already coming But there has been less head- paign. down given the “public discus- way at county and city jails where “I will tell you I didn’t realize sion” about them. Rather, he point- officials often rely on a share of that there would be this much ed to Securus’ computer tab- call revenue to help fund their de- headline risk, but these sometimes lets that allow inmates to make partment. This common practice are opportunities to make change,” phone calls, take degree classes, can account for 90% of the cost he said. “I can’t tell you we ex- enjoy entertainment and look for a and is called a commission — but pected it to be this much work, but job. critics dub it a kickback and re- sometimes these things land with “We saw a lot more things than gressive tax that prison telecoms you and you got to make a differ- the rates,” he said. “The technolo- promote because it provides an ence.” gy in this space is behind.” incentive to inflate rates. With annual revenue of nearly $700 million, Securus is the sec- ond-largest prison telecom by mar- ket share, serving 3,400 correc- tional facilities and handling some 240 million calls last year. It also charges some of the highest rates, according to a report by the Prison Policy Initiative, which sur- veyed more than 2,000 local jails in 2018. The data show that 226 of the 250 most expensive jails had contracts with Securus, with three in Arkansas charging $24.82 for a 15-minute call. “They are selling the equivalent of a luxury product,” said Wanda Bertram of the Prison Policy Initia- Genetha Campbell carries free water being distributed at the Lincoln Park United Methodist Church in Flint, Mich. Tom Gores led a campaign to raise funds amid the tive, adding that the company is water crisis. (Paul Sancya/Associated Press) willing to “jack up phone rates” to appease sheriffs who want higher commissions. book “The Poverty Industry” high- New York nonprofit campaigning The group’s report recommend- lighted such arrangements. against Platinum and other private ed abolishing commissions at jails The companies that operate pri- equity firms. and state prisons, eliminating ex- vate prisons have long been con- The stated mission of Worth cessive fees and making low rates troversial and have been thrust into Rises is to “dismantle the prison the highest contract priority — or the spotlight for running facilities industrial complex,” but Tylek has better yet making phone calls free holding undocumented immigrants lobbied for practical reform in- so prisoners can maintain closer caught up in President Trump’s cluding legislation that would ei- contact with families, considered border crackdown. They are ther lower the cost of calls or make one of the best ways to reduce re- the subject of divestment cam- them free. cidivism . paigns, but activists say that even Her group found a receptive ear University of Baltimore law vendors providing phone and other with presidential candidate and school professor Daniel Hatcher services should have no role in the New York Mayor Bill de Blasio, said that prison telecoms are just system because they have a finan- who signed legislation that this another example of private compa- cial incentive to promote incarcer- year made New York the first ma- nies that partner with public agen- ation. jor city to make jail phone calls cies to extract revenue from the “There is a difference between free. The city got its costs with Se- poorest citizens for services that businesses that have a few ethical, curus down to 3 cents a minute. should be funded by taxation. questionable deviations and a busi- Worth Rises also is pushing reform “The company is making prof- ness that at the root, at the core, is bills in the state, Massachusetts, its, the investment company — unethical, where there is not a re- Connecticut and elsewhere. Platinum — is making profits and deemable piece of the business left Diane Lewis, 53, a Connecticut then you have the states and coun- when you fix it,” said Bianca Ty- mother whose son served 11 years ties that are turning this into a rev- lek, a Harvard Law School gradu- in state prison, said she struggled enue source,” said Hatcher, whose ate and founder of Worth Rises, a to afford calls that cost about $4 Indeed, the broad legal and po- litical attack on the private prison industry and Securus has left Plati- num with a public relations mess — and some scratching their heads about how the savvy Gores got into this position. “For a guy who owns the De- troit Pistons and is very philan- thropic and supports education, what have you, it’s not a good place to be,” said L.A. investment banker Lloyd Greif, who recently advised a company sold to a Plati- num holding. “It’s like Platinum touched the third rail and they’ve Platinum Equity headquarters in Beverly Hills. been taking electric currents for doing so ever since.” for 15 minutes. Sometimes family In California, it costs $1.23 to An Israeli immigrant, Gores members ran up $200 monthly make a 15-minute phone call from was born in Nazareth to Maronite bills from Securus. a prison, which puts the state in the Christian parents who moved to “Talking to my son took priori- middle of the pack.