Alexandra Mosher

USA TODAY

Private prison stocks fell sharply Thursday after the Department of Justice announced that it will be reducing and ultimately ending its use of private prison operators.

Shares of Corrections Corp of America (CXW) dropped 35% to $17.57 a share, though they recovered some lost ground in after-hours trading after the company disclosed the size of its federal business.

Shares for The GEO Group Inc. (GEO) dropped 39% to $19.51 a share.

Deputy Attorney General Sally Yates stated in the memo to the federal Bureau of Prisons that it should decline to renew contracts with private prisons or substantially lower its capacity.

Yates stated that private prisons played an important role when the Federal Bureau of Prisons could no longer accommodate the rising prison population but prison populations are now declining and a recent report out of the Department's Office of Inspector General showed private prisons do not maintain the same level of security and safety that the Bureau provides.

Justice to end use of private prisons

Of the total U.S. inmate population 11% or, 22,104 inmates, are held in a private prison according to the Federal Bureau of Prisons website.

Out of the 13 prisons that the Federal Bureau of Prisons has a contract with, 5 of them belong to Corrections Corp of America. Company spokesman Jonathan Burns said those contracts contribute 7% of the company's business. Shares rose 6% in late trading.

GEO, which owns 6 of the 13 private prisons, said in an e-mail to USA TODAY that although the company was disappointed by the Department of Justice's memo, "the impact of this decision is not imminent."

Even before Thursday's big drop, GEO's shares underperformed the S&P 500, trading flat versus a 4% rise in the broad market gauge. Corrections Corp. shares lost 13% in the past year before Thursday.