Wall Street’s New Prison Scam

As part of a growing effort to stop prison telecom monopolies from charging exorbitant fees for calls between prisoners and their families, last year Minnesota became one of the first states to make all phone calls free for prisoners. And to eliminate the kickback system perpetuating the scheme, the state barred its agencies from collecting commissions on prison phone services, as well as on video calling and e-messaging. 

But records obtained by The Lever show Minnesota’s Department of Corrections still collected hundreds of thousands of dollars in kickbacks last year from commissions on other prison services private telecom companies controlled — including money transfers, music access, and other entertainment behind bars. All in all, the records suggest the telecom firms brought in nearly $3 million in revenue from an ever-increasing array of non-phone prison services in the state. 

Minnesota, which was the fourth state in the country to make the government, not prisoners, pay for phone calls, is a case study in how prison communication companies and their private equity owners have managed to preserve their symbiotic relationship with state corrections agencies despite reforms — at the major expense of incarcerated people and their families. 

According to a Minnesota state watchdog agency, under a current prison contract, people in state prisons must pay between $1.06 and $1.99 to listen to a single song on state-issued devices. Under a new contract with another telecom vendor, the cost will increase to up to $2.36 per song — and the state will pocket a bigger cut of the revenue.

“For-profit telecom companies are making hundreds of millions of dollars from incarcerated people and their families, while Minnesota families are going into debt to stay connected with their loved ones through phone calls and video calls,” said Margaret Zadra, Minnesota’s Ombudsperson of Corrections. “For-profit companies should not be allowed to erode that connection to line their own pockets.”

As digital tablets become increasingly ubiquitous behind bars, criminal justice reform advocates say Wall Street is poised to control and monetize an ever larger share of the daily lives of this captive audience. 

“The ideal world for the private equity owners of these companies is every prisoner has one of their tablets, and every one of those tablets is hooked up to the bank account of someone outside of prison that they can just drain,” said Paul Wright, the executive director of the advocacy group Human Rights Defense Center, which for years has led a campaign to lower prison telecom costs.

In 2023, Minnesota’s corrections agency collected $274,365 in kickbacks from prison telecom companies’ newest offerings, like music, games, and money transfers. That commission revenue, thanks to a long-delayed contract with a new vendor, is poised to more than double in coming years. Most of these revenue sources likely will not be affected by the new phone law.

Aaron Swanum, a spokesperson for the Minnesota Department of Corrections, wrote in a statement to The Lever that the agency uses commissions from telecom companies “to cover costs of services to benefit the incarcerated population — TV, recreational equipment, etc.”  

But Wright says the continued revenue and kickbacks are emblematic of how prison telecom vendors have succeeded in finding new areas in which to gouge profits from prisoners and their families, despite efforts to rein in the companies.

“It’s kind of like stepping on a balloon — you squeeze it down in one place, and it just bulges up somewhere else,” he said. “And that’s the problem we’ve got with these companies.” 

They are, Wright explained, constantly “striving to boost their money streams in places that aren’t regulated.”

The Rise And Fall Of Prison-Phone Profits

In Minnesota and elsewhere, advocates have pushed to help people trapped in the criminal justice system maintain connections with the outside world, which research demonstrates is critical to successful reentry.  

“Studies show that people who maintain strong family and community ties find it easier to reenter society to become part of their community again, and have lower recidivism rates,” said Catherine Ahlin-Halverson, a staff attorney at the American Civil Liberties Union of Minnesota.

But over the past several decades, maintaining that contact over the phone has become enormously expensive for incarcerated people and their families, thanks to the monopoly contracts that states have awarded to prison telecom companies. People in prisons are, quite literally, a captive market: Companies can charge endless fees with sky-high rates and then split the profits with state and federal corrections agencies, and make millions in the process. 

In particular, reformers have taken aim at prison telecom’s kickback model, in which prisons take a cut of fees charged to prisoners, money that is often funneled to funds with little oversight. Kickbacks, activists argue, incentivize officials to keep costs in prisons high. 

Before July 2023, when Minnesota’s new law took effect, people locked up in the state’s prisons were charged 4 cents per minute for a phone call. Sixty percent of the revenue for calls went to the prison telecom company that provides phone services across the state prison system. The remaining 40 percent — 1.6 cents per minute — went to the Minnesota Department of Corrections.

In 2022, Minnesota made $1.3 million off these so-called “site commissions” from the contract with its prison phone provider, according to records obtained by The Lever.

A larger share of the pie went to ViaPath Technologies, formerly known as Global Tel Link, which is Minnesota’s primary prison telecommunications vendor. The company has its roots in the “prison boom” of the 1980s, when the private sector began cashing in on a rapid national expansion of incarceration in both state and federal prisons. ViaPath was among the first firms to turn prison phones into a multimillion-dollar business. And for years, phone calls alone were enough for the company to turn a profit.

“As recently as probably 10 or 12 years ago, if you looked at a balance sheet for these companies, 98, 95 percent of their money was coming from telephone revenues,” Wright explained.

The healthy profit margins for such ventures attracted private equity, which saw in prison telecom easy returns on investment. Over the past two decades, ViaPath has been tossed between major private equity firms, bouncing from Goldman Sachs and Veritas Capital to, most recently, American Securities, which says its portfolio of companies brings in $46 billion in annual revenue.

ViaPath’s main national competitor, Aventiv Technologies, is backed by Platinum Equity, a firm founded by billionaire and Detroit Pistons owner Tom Gores. Together, the two companies control an estimated 90 percent of the prison telecom market.

Critics say that private equity firms, notorious for ruthless profiteering, create especially perverse incentives in the prison industry. “Firms benefit from increased incarceration — the more people using food or healthcare services, the more money they make,” the Private Equity Stakeholder Project, a private equity accountability group, wrote in a recent article that investigated private equity’s massive foothold in incarceration.

ViaPath’s predatory business practices are well documented. The company was implicated in a bribery scheme in Mississippi that sent the state’s corrections boss to federal prison in 2017. A 2015 class-action lawsuit accused the company of seizing money from inactive accounts of people making calls to prisons and jails, forcing ViaPath to pay out a $67 million settlement. Other lawsuits have accused ViaPath, as well as Aventiv’s subsidiaries, of improperly recording attorney-client phone calls.

But the outlook on the prison phone call industry began to change when the Federal Communications Commission, which regulates phone and other communications, handed down new rules during the Obama administration that capped per-minute fees that companies could charge for prison calls. Despite some rollbacks under Donald Trump’s presidency, the rate caps remain, and the Federal Communications Commission has indicated it plans to strengthen the rules in the coming months, threatening to eat further into prison telecom’s profits.

At the same time, the number of states offering free phone calls in prisons is multiplying at a rapid clip. 

“This is a very fast-moving trend,” explained Bianca Tylek, the founder and executive director of Worth Rises, an organization that has led the campaign for free prison phone calls across the country, including in Minnesota. Connecticut was the first state to enact a free-call policy in 2021. Now, Tylek said, “there are probably about a dozen states that are considering legislation in 2024 to make communication free.”

Vendors like ViaPath will in most cases keep their contracts in these states, and continue making money from prison phone calls. But now it will be the state who is paying, not people in prison — meaning that the state has a stake in keeping rates low. 

“Now the government is on the hook for paying the bill, and is likely to be more aggressive in its negotiations,” Tylek explained. 

In a recent lender presentation obtained by Bloomberg, ViaPath executives claimed looming reform efforts would “drive stability” for the company. But industry analysts have been less optimistic, calling the trend toward the free-call model in particular a “risk to profitability.” ViaPath has posted mediocre financial results in recent years, and Aventiv has been struggling to refinance more than $1 billion in debt. 

In response, the prison telecom industry has begun pitching new products to prisons and jails where they can still freely charge exorbitant fees: Music streaming, e-messaging, video calling, and movies, all hosted on tablets, and all monetized.

“It really appears that in a lot of places, the majority of revenue that companies are bringing in is from non-phone products,” said Wanda Bertram, an analyst with the Prison Policy Initiative, a nonprofit that conducts research on mass incarceration.

In a statement to The Lever, Sally Ewalt, a spokesperson for ViaPath wrote, “ViaPath will continue to provide communication products for incarcerated individuals and their loved ones while also continually expanding its offerings, services, and programs.”

Ewalt added that the company had “supported 15 million learning hours on our tablets to assist people in getting their high school equivalency, develop life skills, and prepare for work after release.”

“We Have To Stay Vigilant”

In Connecticut, where Worth Rises waged its first fight against prison phone fees, advocates faced the lobbying might of Securus, an Aventiv subsidiary. The company’s opposition to the reforms in Connecticut in 2019 quickly became a scandal, however, and since then Securus, along with its parent companies, has assumed an outwardly neutral position on free prison phone policies.

“Securus understands the importance of keeping incarcerated individuals connected with their loved ones,” wrote Margita Thompson, a spokesperson for Aventiv, in a statement to The Lever. “We are committed to making our communications services as affordable as possible and we implement any funding model selected by an agency or state.”

In 2023, all was — apparently — quiet in Minnesota as reformers pushed through free prison phone legislation. “If [the vendors] had specific pushback in Minnesota, they didn’t contact me,” said Esther Agbaje, a Minnesota state representative who helped author the bill and deliver it through to the governor’s desk. Minnesota’s prison telecom vendors did not report lobbying in the state last year, according to state disclosure data. 

Ultimately, the bill passed largely along party lines; Democrats control both chambers of the state legislature. Minnesota Gov. Tim Walz, also a Democrat, signed the legislation in May, and it took effect on July 1. Minnesota’s jails, which are run at the county level, were not covered by the new law.

Along with making the state foot the bill for all prison phone calls, the law targeted the kickback system that helped facilitate exorbitant prison communication fees. As Wright explained, prison telecom companies often put their money toward sales teams that interact with state prison officials, rather than lobbyists at the statehouse. “They’re trying to schmooze the government officials that are giving them the monopoly contracts,” he said. “They’re spending a lot of money doing that.”

In part to address this, lawmakers in Minnesota decided to take on the commissions the Department of Corrections was receiving from telecom companies. The new law barred the state from collecting commissions from communications services like video calling or e-messaging in future contracts.

“Moving away from this kickback model hopefully decreases the profit incentive in an area that we should be focused on rehabilitation and person-to-person connection,” said Agbaje.

Yet the state corrections agency is still raking in hundreds of thousands of dollars in kickbacks that are not covered by the law, data obtained by The Lever show. Money-transfer charges — fees to move money into an individual’s prison account — brought the state $160,000 in 2023 alone. The state received another $48,500 from music streaming, and $31,000 from the cost of sharing photos.

Swanum, the Minnesota corrections spokesperson, acknowledged the agency was still receiving the commissions, and did not directly answer whether or not it would continue to collect them in future contracts. “We have not had any discussions about commissions related to non-communications services,” he said.

All this money is currently coming from Minnesota’s contract with JPay, an Aventiv subsidiary, which offers the Department of Corrections a five percent commission on most of its offerings. But in recent months, Minnesota has been preparing to roll out prison tablets made by ViaPath — a move that would likely quadruple the amount of money that the state is receiving in commissions for services like music or ebooks. 

For such services, the state will get a 20 percent cut of any revenue, up from 5 percent under the JPay contract, according to a recent report by the Minnesota Office of the Ombuds for Corrections, a state watchdog agency.

Bertram at Prison Policy Initiative said it has proved more difficult to regulate entertainment and money transfers in prisons — in part because these services are more easily dismissed as frivolous. “People will say, ‘Okay, phone calls are one thing, but text messages or games or movies — these are luxuries,’” said Bertram. “When really I think it’s all a matter of consumer protection.”

The rise of free prison phone calls still represents a significant victory for criminal justice reformers. Connecticut, where such calls have been free since October 2022, has seen far higher numbers of phone calls in its prison system. “We have seen people using their communication services and reconnecting with families,” said Tylek at Worth Rises. The policy was “really, really successful,” she emphasized.

But the companies behind those calls are the same ones now looking to profit from controlling other prisoner services.

“Even though phone call rates are getting a lot better — which I’m glad about — I think we have to stay vigilant,” said Bertram.