Something had changed with SCAR. It started with the food. It had always been bad. Now there wasn’t enough of it. I know, I know: The food here is terrible and the portions are so small. But from what Scott could figure, the prisoners were on 1,500 calories a day, or maybe less.
Everyone started to get hungry. Always. Cellies shared their commissary, or begged family for more money in their accounts. Other guys got irritable, and then mean, and then they started to eat other prisoners’ food. Mealtimes got ugly.
Commissary prices were up. Commissary portions were down. Somewhere, SCAR had found a contractor who would sell them a 4.32-ounce can of tuna that only had 3.9 ounces in it. They didn’t even bother to make up the extra space with water. Prisoners built balance scales out of string woven from sheet threads passed through either end of a toothbrush handle teetering on a table corner, and weighed the new tuna against the old.
There were fewer guards, too, which had a ripple effect through prison life. Head counts took longer and sometimes cut into yard time or meal time. Fights didn’t get broken up as quickly, or sometimes weren’t broken up at all. The prisoners did all the important work around the prison, but they had to be supervised by guards, whether they were manning the commissary or mopping the floors. If guards weren’t available, the work wasn’t done.
The tablets started to break. They’d always broken, but they’d been the one thing that SCAR could be relied on to replace quickly, since a broken tablet was a tablet that stopped producing revenue for SCAR. SCAR wouldn’t swap you a new tablet just because your screen was cracked or because the battery was so worn out that it only worked when it was plugged in, but once it was completely unusable, it would be sent to a depot for refurbishment and replaced with another refurb.
But one day, that stopped. A prisoner finally managed to snag one of the elusive guards and ask for a swap-out, and the guard took the old model but never came back with a new one. Days ticked by. A week. The prisoner caught up with the guard, who shrugged and said, “You’ll get it when you get it.”
Other tablets broke and disappeared. The tablets weren’t just the prisoners’ music, video, and book library, weren’t just their lifeline to mail and voice calls and video calls, they were also their interface to the commissary. Fifteen hundred calories a day and no commissary made things mean.
There were more fights. The guards stopped pretending they were breaking them up. There were fewer guards anyway. Scott heard two of them talking about taking a buyout package from the new owners.
SCAR had new owners.
*
“What do you know about them?” I asked. Scott’s camera had stopped working, so we were stuck on voice calls.
“Not much,” he said. “No one tells us anything but the rumor mill says that we’re getting a new warden next week and that nothing is going to change until he arrives. Maybe you can poke around SCAR’s corporate filings?”
“I can definitely do that. You don’t want me to try to talk to a journalist, though? This can’t be legal.”
“Buddy, from what you tell me, California is broke. No one’s going to give a shit about what happens in a state pen. You’re a forensic accountant, not a muckraker. Stay in your lane, all right?”
I pretended I wasn’t offended. “Sure thing. Sorry, Scott. I just—”
He sighed. “I know. I’m just hungry. Makes a man irritable.”
“I thought your commissary was still working? Aren’t the bank transfers still good?”
“They’re fine but getting food delivered right now is bad for your health. No one wants to admit to being able to get extra chow. Some of these guys are in a bad way, losing their judgment and their cool. They’re looking at decades more time and thinking about what twenty years of starvation diet will be like.”
“Shit,” I said.
“Yup,” he said.
“Okay, I’ll get digging.”
*
I figured out what had happened to SCAR the same day they announced. The private-equity firm that had rolled up SCAR and saddled it with a half-billion dollars in debt was just one of eight similar operations nationwide, and now they had been rolled up in an even bigger PE play, this one led by Thames Estuary Management.
You’d think that Thames Estuary was based in London, or at least somewhere in the actual Thames estuary, but you’d be wrong. The company was registered in Nevada and its actual headquarters were in Long Beach, CA. I did find a related Bermudan company, but that was just a vehicle for base-eroding profit-shifting: Thames Estuary had some registered trademarks that it had sold to the Bermudan company and licensed back for hundreds of millions of dollars per year.
The Bermudan company—Dark Gulch Holdings—siphoned off all the profits in trademark licensing fees, ensuring that Thames Estuary showed no taxable profits as far as the IRS and the California Franchise Tax Board were concerned.
This wasn’t Thames Estuary’s first rodeo. The year before, it had bought and flipped a hundred nursing homes. The purchases were 95 percent debt-funded to the tune of $450 million, meaning they were playing with other people’s money. They laid off some staff and consolidated the homes’ back offices, renegotiated deals with Hillrom, a giant company that made both caskets and hospital beds, and fired the unionized nurses in all their Illinois facilities.
This reshuffling paid off . . . a little. Thames Estuary sold its nursing homes to Live Street Capital, a front for the Bahraini royals, who paid them $475 million. A $25 million profit on an investment of $450 million might not sound like much, but remember, Thames Estuary only put up 5 percent, that is, $22.5 million, meaning it more than doubled its money.
In reality, they had to use some of that to service the debt and pay transaction fees to their investment bankers, but don’t worry! Half of what remained they paid to themselves as “carried interest” (a tax loophole invented by sixteenth-century sea captains and beloved of hedge-fund managers) and the rest got laundered through Dark Gulch and ended up bobbing in azure Caribbean waters in a state of tax-free grace.
The nursing-home caper made for a good calling card. Thames Estuary could have used it to raise cash from rich Silicon Valley “pioneers,” wealthy dentists, and other usual suspects, but it changed tactics: it went public.
Now, taking Thames Estuary through an IPO would have been messy and potentially embarrassing. When you list your company on a stock exchange, you allow any schmuck to invest in it, and the SEC doesn’t like to see schmucks get ripped off. An IPO means opening your books, making mandatory disclosures, and, in the wake of Enron, the possibility of prison sentences for lying or omitting on those disclosures.
But Thames Estuary was on the cutting edge of financial sleaze. They went public through a special-purpose acquisition company—a.k.a., a “SPAC.” SPACs are “blank-check companies”—companies that have no business and do no business. You’d think that having no business and doing no business would be a liability when it comes to attracting investors, but remember, if you have nothing and do nothing, you can disclose everything and still not fill a sheet of paper. Investors hate reading.
A SPAC is an empty vessel. A group of “smart guys”—say, the people who doubled their money while enshittifying a hundred nursing homes—file the paperwork to create a public company, one that any average schmuck can put money into. The paperwork is easy, because the SPAC doesn’t do any business. It says, “We’re a SPAC. We have nothing. We do nothing. Give us your money, and we’ll buy a company that is doing stuff. We will apply our special genius to that company and make it more profitable, and when we do that, your ten-dollar shares will increase in value and you can sell them and make money, too.”
The first time you hear about a SPAC, you may assume you’re misunderstanding. It sounds like a scam. Normal IPOs require people to explain how their business works before they take it public. SPACs don’t have a business until after they go public, which means they can skip all those tedious disclosures that are supposed to protect normal schmucks, rake in their ten-dollar share purchases, then use the money to go on a shopping spree.
No, you didn’t misunderstand that.
SPACs are as obvious a scam as you could ask for, a completely transparent ruse to bypass disclosure rules. In fact, calling SPACs a transparent ruse is an insult to good, hardworking transparent ruses all around the world.
So why would anyone hand them their money? More to the point, why did average schmucks hand Thames Estuary’s SPAC $750 million when it IPOed? Couldn’t they see it was a scam?
I’ve talked to a lot of people who’ve invested in scams and I estimate that at least half the time, they know it’s a scam, but they figure they’re in on it. After all, what do you call what happened in 2008, when the richest bankers in the world crashed the global economy, got trillions of dollars in bailouts, and walked away even richer? It’s a scam. Obviously, the fact that something is a scam doesn’t make it a bad investment.
Flush with average schmucks’ ten-dollar shares, the founders of Thames Estuary went to the banks that had financed their nursing-home scam and levered the money up to $11 billion. They paid themselves a one-billion-dollar special dividend, then made generous offers on those eight prison roll-ups and merged them into one very large private prison company—a private prison system.
That required disclosure, and they released a fat PDF full of ways to make money. For example, they were going to solve the California prison-crowding problem by sending California prisoners to Arizona, New Mexico, Colorado, and Utah.
Normally, this would be frowned upon because prisoners who are sent out of state end up isolated from their families, who can’t get the time off work to drive across state lines to see their loved ones. Maintaining family connections is widely understood to be correlated with successful rehabilitation, and, contrariwise, prisoners who drift away from their families while they’re inside are much more likely to reoffend after their release.
But the prisoners in Thames Estuary’s care wouldn’t have that problem: whether they were locked up in their hometowns or on the dark side of the moon, the visitation process would be the same—an eight-dollar-per-minute video call, or a three-dollar-per-minute voice call. That was pricey for a family whose breadwinner was serving fifteen years, but don’t worry; Thames Estuary had a financing arm that was going to offer easy credit to those families. The APR was a strictly humanitarian 443 percent. The same subsidiary was prepared to offer comparable terms to parolees and ex-prisoners who needed a loan to get back on their feet.
It was just one of the many synergies that were going to justify the giant SPAC cash infusion and safeguard the flow of debt payments to Deutsche Bank and JPMorgan, who had turned the $750 million in IPO money to $11 billion in total liquidity.
Reading through the documentation for the acquisition made my head hurt. It was needlessly, performatively complex—one of those deals that was complicated so it would be hard to understand, rather than being hard to understand because it was complicated. There’s a certain kind of mark that assumes that any sufficiently thick prospectus must be a good buy, just as any sufficiently large pile of shit must have a pony beneath it.
I am good at slicing through that kind of document. I’d been at it so long—more than three decades, by then—that I did it by reflex and sometimes I didn’t even realize that I was at it until I talked to some hapless civilian who professed bafflement or revealed their grave misconceptions about a scam whose contours I’d immediately grasped.
It wasn’t the bafflegab and chaff that made my head hurt; it was the fact that it had worked. A lot of average schmucks had fallen for it, and so had the loan officers at two of the world’s largest financial institutions—institutions that had been at the brink of collapse thanks to bad loans just a few years before and only existed today thanks to the public bailouts that rescued them.
When I started out in this business, my mental model was that 80 percent of business was real and 20 percent was scams. When the S&L crisis hit, I recalibrated to 70/30. After Enron, the dot-bomb, and the subprime crisis, I was at 40/60. Reading the paperwork from Thames Estuary, I felt like the entire economy had become a scam, and any real businesses remaining were incidental residue.
Thames Estuary had built a king rat without parallel.
The majority of prisons in eight states would be a machine for transferring billions from the public purse to Thames Estuary’s executives and shareholders. It wasn’t just their loan-sharking subsidiary, or the commissary subsidiary, or the quarterly-package subsidiary, or the subsidiary that sold cameras and monitoring tools. It wasn’t the halfway houses, or the ankle-cuff monitoring, or the chain of bail bondsmen who offered “seamless integration” with the local jails Thames Estuary had acquired in its massive roll-up.
It was all of it. To hell with king rats, this was a machine, a million-armed robot whose every limb was tipped with a needle that sank itself into a different place on prisoners and their families and drew out a few more cc’s of blood.
One of Thames Estuary’s subsidiaries was Prisonsy, a former fintech start-up that pivoted to processing prison commissary payments, then expanded its offerings to ebooks, games, videos, and music.
All of that was sold in an app store that came locked to a tablet, which they would generously provide, free of charge, to every prisoner in their care. It would serve as the prisoners’ portal to email, voice calls, and videoconferencing.
It would replace the tablets that prisoners had received under previous prison operators, including SCAR. Which was good, because for months, all of those prison operators had drawn down their maintenance programs, eventually killing them altogether, so that every prison in Thames Estuary’s care had been transformed into a scrap heap of e-waste.
Giving all those prisoners shining new tablets was a kindness.
And if none of the media they’d previously purchased was carried over to their new devices, well, that was a small price to pay for a serious upgrade, wasn’t it?