Private Equity's $1.7 Billion Child Welfare Scandal

Children died while investors extracted $569 million in dividends from foster care companies

Children in America's foster care system are dying at rates 43% higher than the national average. They're being sexually abused, restrained until they suffocate, and denied basic medical care. And it's happening because private equity firms discovered they could make billions from the nation's most vulnerable children.

A new investigation by Project Milk Carton reveals how Wall Street investment firms have systematically acquired foster care agencies and residential treatment facilities across the United States. The evidence shows these companies prioritize profit extraction over child safety, leading to $1.7 billion in legal damages in 2024 alone.

The investigation uncovered 86 children who died over 10 years in facilities owned by a single private equity-backed company. Internal records show only 13 of those deaths received any investigation from the company itself.

The Money Trail

Private equity firms use a simple playbook. First, they buy a foster care company using borrowed money. Then they cut costs by reducing staff and deferring building repairs. Finally, they load the company with even more debt and pay themselves massive dividends.

The Mentor Network shows how this works. Six months after Centerbridge Partners and Vistria Group bought the company for $1.4 billion in 2019, they paid themselves $100 million. Two years later, they took another $375 million. Both payments came from new debt loaded onto the company.

Those dividends flowed to investors while children died. Senate investigators found Mentor's death rate was 42% to 43% higher than the national foster care average. The company falsely claimed its death rates were normal.

Sequel Youth & Family Services followed the same pattern. After Altamont Capital Partners acquired the company in 2017, they extracted $94 million through debt transactions. In 2020, staff at a Sequel facility in Michigan restrained 16-year-old Cornelius Frederick for 12 minutes because he threw a sandwich. He died of cardiac arrest. A medical examiner ruled it a homicide.

Michigan banned all business with Sequel after Frederick's death. California, Oregon, Minnesota, and Washington followed. But the company's founder simply rebranded 13 facilities under a new name: Vivant Behavioral Healthcare. Domain records show another potential rebrand may be coming. The domain "vivantbehavioral.com" was registered just three days ago.

The Human Cost

Universal Health Services operates 330 behavioral health facilities nationwide. In 2024, juries awarded $895 million in damages across two cases involving the Fortune 500 company.

At Pavilion Behavioral Health in Illinois, a 13-year-old girl was raped by another patient. A jury awarded $535 million. At Cumberland Hospital for Children in Virginia, the medical director sexually abused children. That verdict: $360 million.

A separate lawsuit alleges that at UHS's Hartgrove Hospital, children as young as 8 were forced to perform sexual acts on other minors. More than 100 children are part of that case.

The company paid $122 million to settle federal charges in 2020 for unnecessary admissions and inappropriate restraints. A 2023 Senate investigation found UHS "prioritized revenue over patient care."

Acadia Healthcare settled abuse cases for $400 million in 2023. The company also paid $1.39 million to settle Securities and Exchange Commission charges for retaliating against a whistleblower and nearly $20 million to settle Department of Justice Medicaid fraud charges.

At facilities run by AdvoServ, staff routinely used mechanical restraints including leather cuffs, wrap mats, and strapped chairs. A ProPublica investigation documented children being kicked in the head, choked, and dragged across floors. Children had teeth knocked out and suffered broken arms, collarbones, and jaws during what staff called "behavior interventions."

Paige Lunsford was 14 years old, autistic, and non-verbal when she died at an AdvoServ facility in 2013. Staff bound her to a bed. She vomited for days. No one called for medical help. She died of dehydration.

How They Get Away With It

There is no comprehensive federal regulation of residential treatment facilities for children. Standards vary wildly across 50 states. Many states exempt religious boarding schools from licensing requirements entirely.

Facilities are not required to report deaths to federal authorities. States that contract with private companies often fail to track performance. And the corporate structures that private equity firms use make accountability nearly impossible.

When lawsuits pile up, companies simply rebrand. Sequel became Vivant. The Mentor Network became Sevita. AdvoServ became Bellwether Behavioral Health. Corporate shells in Delaware and Virginia shield parent companies and investors from liability.

The Senate Finance Committee released a 136-page report in June 2024 titled "Warehouses of Neglect." The investigation found children "regularly subjected to physical, sexual, and verbal abuse" in facilities that "regularly fail to hire adequate numbers of qualified staff."

The committee concluded that harms are "inherent to a model that incentivizes maximizing profits" and "endemic to the operating model" of private equity-owned facilities.

Committee Chair Ron Wyden asked the Department of Justice to investigate potential Medicaid fraud and civil rights violations. That investigation is ongoing.

What This Means

Between 120,000 and 200,000 children are in residential treatment facilities in the United States right now. The majority of those facilities receive government funding through Medicaid and state contracts.

Taxpayers are funding a system where investors extract hundreds of millions of dollars while children die. The profit motive creates pressure to cut costs, pack facilities beyond capacity, and minimize therapeutic services. Children become revenue units measured in daily per diem rates that range from $275 to $800.

States are beginning to act. California banned out-of-state placements for foster youth. Michigan severed all ties with Sequel. But the private equity firms that own these companies have deep pockets to fight regulation and shape the rules they operate under.

The investment model itself is the problem. When the business strategy requires maximizing short-term profit to pay back acquisition debt and fund investor dividends, child safety becomes a line item to be minimized.

Investigation Methodology

This investigation analyzed Senate Finance Committee reports, court records from federal cases, financial disclosures, investigative journalism from ProPublica and NBC News, and regulatory documents from multiple states. Domain registration records were verified using WHOIS lookups. Financial extraction data was compiled from dividend recapitalization filings and credit agreements. Death statistics come from Senate investigative records that compiled data from state licensing agencies and facility self-reports over a 10-year period.