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 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. 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 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 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 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 , 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. San Francisco the Flint area when he was 4. He ty over every bill in my house. this summer moved to become the worked in his dad’s grocery grow- Were there times the lights were nation’s second major city to pro- ing up and put in a stint as a janitor off? Yeah. Were there times the vide free jail calls. There is also a to pay his way through gas was off? Yeah, but when he bill in the Legislature that would State University. Worth an esti- came out he was connected to his require county jails to end com- mated $4.1 billion, according to family. He knew when there was a missions and lower their rates. Forbes, Gores has had a remarka- new baby, when somebody died. Gores carved out a niche in pri- ble rise since moving to Los Ange- That makes a huge difference,” vate equity by buying struggling les in 1988 to run a lumber- said Lewis, who makes $49,000 a industrial or information technolo- logistics software company found- year working for a program that gy businesses at a discount, such ed with his brother Alec, with helps place former inmates in jobs. as orphaned divisions of Fortune whom he learned the mergers-and- If the Connecticut bill is signed 500 companies not seen as core acquisitions business. into law, the state would be the assets. Sometimes that involved Gores split from his brother and first to make phone calls free for headline risk, such as Platinum’s founded Platinum in 1995. Alec state prisoners, but past efforts foray into the newspaper industry a Gores has his own L.A. private have run into bureaucratic opposi- decade ago, when it bought the equity firm and is worth tion because the state receives San Diego Union-Tribune, upgrad- an estimated $2.2 billion. The larg- commission revenue now totaling ed the paper’s technology er Platinum, with $13 billion under about $7.5 million a year, said and announced 192 layoffs just management and a portfolio of 40 state Rep. Josh Elliott, who is car- days after the sale closed. But firms, is housed in opulent Beverly rying the bill. “That goes toward Gores had a lower profile back Hills offices once the headquarters paying probation and parole offic- then, before his 2011 acquisition of talent agency MCA. Gores’ ers and services. We are not taxing of the Detroit Pistons. home is a $38-million show- people for that,” he said. piece in the ultra-exclusive Bever- ly Park neighborhood in Beverly Hills. A third brother, Sam, found- ed and runs talent agency Para- digm. Greif said that Platinum’s ac- quisition of Securus was a “high- visibility, high-risk” decision giv- en the transformation of prison businesses into the category of a sin industry like tobacco and guns. The circumstances surrounding the deal didn’t help. The acquisition closed less than a year after President Trump’s ap- pointee to lead the Federal Com- munications Commission aban- doned an Obama-era effort to im- pose caps on in-state calls, a priori- ty for activists since about 80% of calls are local. Prison telecoms, including Securus, had sued to block the caps and had scored a victory in appeals court. Then, just months after the deal closed, Platinum attempted to buy the third-largest prison telecom. The merger with ICSolutions was Bianca Tylek is executive director of Worth Rises, a nonprofit campaigning against Plati- right out of the private equity in- num and other private equity firms. (Kwame Owusu-Kesse) dustry’s playbook, but it infuriated activist groups, which blanketed prison service companies asking to juvenile inmates, flat rates for all the FCC docket in opposition, ar- meet with them and demanding call types, a $5 price cap for a 30- guing that Securus had a history of that they exit those investments. minute video chat and free app op- flouting regulations and that the One of the groups, the American tions for all tablet content. deal would lead to even higher Federation of Teachers, also issued In response to the growing fu- rates. a report that warned public pension ror, Platinum told investors in a In a surprise, the agency nixed fund managers that investing in letter that some of Securus’ most the acquisition, prompting Plati- private equity firms with such offensive practices had been dis- num to abandon the deal. Tylek holdings could result in lower re- continued before the acquisition, said the decision energized the ac- turns because of the growing back- including contracts that as a condi- tivist community and made Plati- lash against the prison industry. tion of providing video chats lim- num realize they wielded real pow- A month later, Worth Rises de- ited in-person visits. It also stated er. “That opened their eyes,” she manded Platinum implement a se- that while it supported reforms in said. ries of “operational reforms” and the prison services industry, the In February, activist groups sent exit the Securus investment by the companies benefit inmates and letters to Platinum and other pri- end of next year. Among the de- “the larger debate over mass incar- vate equity firms with holdings in mands were free phone calls for all by-contract negotiations as it at- tempts to wean corrections agen- cies off commissions. One method is requiring Securus to offer every agency it serves a commission-free contract option. He said Platinum remains open to working with the activists and is attempting to meet Worth Rises’ demands where it can, but he com- plained that activists really prefer to have the company and industry shut down and dismantled. “I’ll just tell you the work is the work,” he said, adding that activ- ists prefer to “demonize us, to de- Tom Gores with kids on court at the Palace of Auburn Hills. (Mike Ferdinande) monize the company, to demonize the industry.” ceration is outside of our pur- num partner Mark Barnhill pledg- Tylek acknowledged the goal is view.” ing to the board to turn Securus to make companies such as Se- The activists set about trying to into a “responsible market leader.” curus “toxic assets,” but said Plati- directly quash investment in Plati- Citing securities regulations, Plati- num still needs to move faster on num’s latest fund — its largest ev- num will not discuss fundraising, reforms, which she said have come er at $8 billion — starting with but before the August meeting only under the most extreme pres- New York City’s public pension it reported in a filing that it had sure. “They continue to promise funds. No decision has yet been raised $7.17 billion toward its lat- action, but the longer it takes for released, but a source close to the est fund. our communities to see relief, the matter said the funds went ahead Gores acknowledged that he more their promises are sounding with a $300-million investment. never expected the Securus deal like marketing,” she said. However, they are reported- would lead to a campaign pressur- Activists plan to next tar- ly working on a “side let- ing his firm’s institutional inves- get Apax Partners, a London firm ter” prohibiting use of the money tors — “there’s a lot of hindsight that is raising money and owns in any prison-related companies. here” — but he refused to accede electronic-monitoring compa- Platinum and the activists to demands for an early exit, say- ny Attenti. Instead of freeing pris- clashed again last month before the ing the company will reinvest prof- oners from jail or prison , critics Pennsylvania Public School Em- its to improve operations. Platinum say these companies actually wid- ployees’ Retirement System board. typically owns its portfolio compa- en the net of incarceration by en- The fund had invested $1.08 bil- nies three to five years. couraging monitoring. But Tylek lion in prior Platinum rounds and “We are not going to pop in, said Worth Rises “will continue to is earning what amounts to an an- make a few bucks and pop out. We be a thorn in Platinum Equity’s nualized return of more than 30% are going to make it right first,” side,” focusing especially in De- — exceptional even by private eq- Gores said. troit, where Gores is a prominent uity industry standards. Barnhill told The Times that local figure. The board went ahead with a Platinum agrees rates are too high “We will go at every available $300-million investment despite but reforming the company will be public pressure point, and if that activists’ opposition, with Plati- a slow process involving contract- means leveraging their public face with the Pistons we will do that,” Tylek said. Clearly, there would be sensi- tivities in Detroit, where the Pis- tons are a month away from open- ing a $90-million practice facili- ty that will feature shops and other community benefits, and few are willing so far to comment on the matter. Mayor Mike Duggan, who has effusively praised Gores for bring- ing the Pistons back to the city, declined to comment for this arti- cle, with a spokesman saying that he has never heard of Securus. ESPN analyst Jalen Rose, a for- Former NBA players Jalen Rose, center, and Rick Mahorn, right, attend the Jalen Rose Leadership mer NBA player who runs a De- Academy Celebrity Golf Classic, presented by Tom Gores and Platinum Equity in August. (Scott troit charter school Gores supports Legato/Getty Images) through a celebrity golf tourna- ment, said through a spokesman that he “respectfully declined” to into government budgets at all lev- kid who grew up in Flint and start- participate in this article after be- els. ed with nothing, and if I could fig- ing told of its content. Former Vice President Joe ure that out and get where I am Gores is a personable billionaire Biden has had to repeatedly defend today then I can figure this out, who whoops it up on the sidelines himself on the presidential cam- and I am going to make a differ- and has a reputation as a player- paign trail for his backing of 1994 ence.” friendly owner, video-chatting and tough-on-crime legislation that texting with athletes. critics say contributed to the prob- During the height of the Colin lem. And bipartisan legislation that Kaepernick controversy, when the could cut the prison terms of some NFL quarterback was drawing federal offenders even drew Presi- massive attention for kneeling dur- dent Trump’s signature this year. ing the national anthem to protest Gores maintains the outcry has police brutality, Gores stood out energized him, and he promised to when he said he would support his get more personally involved in players if they wanted to do so managing Securus, something typ- themselves. ically left to Platinum’s operations But the optics of an investment staff. He also offered to sit down in a prison telecom are worsening face to face with activists to help as consensus grows that mass in- improve the company. carceration — with an estimated “There are not a lot of things 2.2 million people in U.S. jails and that get me too excited, but this is prisons — has contributed to pov- in a way something where I can erty, destroyed families and eaten get inspired to make a difference to a lot of people,” he said. “I am a