Pricor: What if

You Built a Prison and Nobody Came?

Empty private prisons and municipal coffers plague rural communities around the country. It is in Texas, however, with the nation's highest number of private prison beds, that this combination has most clearly illuminated the shadier side of privatization. Among the more notorious of many scandals was the Pricor/N Group scheme. Promising ample prisoners and profits, Houston-based N-Group convinced six Texas counties to issue $74 million in bonds for for- profit prison construction to be managed by Pricor. To ease the deal through the legal and political obstacles, N-Group owners, Houston brothers Michael and Patrick Graham, linked up with local power brokers. They hired an ex-governor's law firm, signed on a former Texas House speaker as a lobbyist, and took on the husband of the future state treasurer as bond counsel. Covering their bets, the Grahams paid several county attorneys and financial advisers $10,000 each to "review" the deals. N-Group's assiduous wooing of politicians paid off: The Graham brothers collected $2.2 million in bond proceeds-but no prisoners showed up, and the counties and the bondholders are left in the lurch. The legal and political fallout continues. In 1991, Pricor was named as an unindicted co-conspirator by a West Texas grand jury for its role in putting together the scheme; N-Group was indicted on criminal antitrust charges. The two companies, along with Drexel Burnham Lambert, the plan's underwriter, were sued by a group of mutual fund investors who claim to have been bilked out of $70 million in the failed effort. The private prison profiteers were undeterred. Gilbert R. Walker-Pricor president from 1988 to 1990, when he left the company in the middle of the failed Texas prison deal--and David Arnspiger, a former Drexel official named in the Texas lawsuit, joined forces. As heads of GRW Corporation and Potomac Financial Group, respectively, they put together a similar deal in Walton County, Florida, in 1992. Under the joint proposal presented to Florida officials, Potomac would broker the bonds to finance a new prison in DeFuniak Springs, while GRW would manage the facility. After exposure of Pricor's shenanigans in Texas, Florida officials declined Walker's proposal.

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