DOJ Charges 'Flat-Out Lies' Opening Statements in Suit Against Tobacco Industry

By Brian Blackstone

The U.S. Justice Department began its $280 billion civil racketeering suit against cigarette makers Tuesday by alleging "flat-out lies" over decades that "victimized the youth of America."Tobacco lawyers, in a preview of their opening statements Wednesday, said the government's case was simply a rehash of decades-old evidence that doesn't take into account changes the industry has made in the past five years, changes the Justice Department countered are "too little, too late."

"This case is all about fraud," said Frank Marine, an attorney in the Justice Department's Organized Crime and Racketeering Section since 1982, in opening statements.

He charged defendants with "flat-out lies that continue to this day."Citing internal industry documents going back to the 1950s, Marine said that companies fraudulently denied the link between smoking and disease. The government also charged that companies marketed to young people, falsely touted health benefits of light cigarettes and denied the effects of second-hand smoke and that those practices continue today.

The companies named in the racketeering suit are Altria Group Inc.'s (MO) Philip Morris USA; R.J. Reynolds Tobacco Holdings Inc. and Brown & Williamson, which have merged to form Reynolds American Inc. (RAI); British American Tobacco PLC (BTI); Vector Group Ltd.'s (VGR) Liggett Group Inc.; and Loews Corp.'s (LTR) Lorillard Tobacco Co.

The alleged "fraudulent scheme" among the defendants began in late 1953 at a meeting in the Plaza Hotel in New York City and was furthered by the creation of industry groups such as the Tobacco Institute.Defendants formed an "illegal enterprise" to carry out "shared fraudulent objectives," Marine said.The case, which is being heard by U.S. District Court Judge for the District of Columbia Gladys Kessler, is expected to last about six months, with each side given 12 weeks to make its case.

The government filed suit Sept. 22, 1999, against cigarette manufacturers alleging a "50-year scheme to defraud the public, including consumers of cigarettes" in violation of the Racketeer Influenced and Corrupt Organizations Act, or RICO.

In addition to the record $280 billion recovery from what it says are ill- gotten gains resulting from youths who became addicted to cigarettes, the government seeks changes in the manufacturing, marketing, labeling and sale of cigarettes.

Marine defended the $280 billion figure, saying it reflects the five trillion cigarettes sold between 1971 and 2000 to people who became addicted at youth - the government measures addiction as anyone who smokes five or more cigarettes per day. If the government would have gone back to 1954, the U.S. would be entitled to $830 billion, he claimed.

But when Marine went beyond statistics to claim more broadly that "if it's money obtained by fraud, it's not their money," he drew the only defense objection of the day which was sustained by Judge Kessler.

Indeed, the judge acted a number of times to restrain Marine, from admonishing him to speak more slowly to rebuking him for language he used in describing defendants.

When the government lawyer observed that cigarette makers hadn't come up with an alternative figure to the government's $280 billion claim, Kessler reminded him that defendants "don't have to participate in their own demise."

Tobacco Cites Massive Industry Changes

Cigarette makers insist they fundamentally changed their behavior even before the lawsuit was filed in 1999 as a result of the massive settlement with attorneys general in 46 states in which big tobacco agreed to pay $246 billion over 25 years.
They also claim that the $280 billion figure is wildly inflated and that a judgment of that size would effectively put them out of business.

Associate Attorney General Robert McCallum reiterated the government's contention that destroying Big Tobacco isn't its purpose. "The goal of this case is not to bankrupt or crush or regulate the tobacco industry," he said.

The defense makes its opening statement Wednesday.

Even if one assumes tobacco executives were poster boys for bad behavior in the 50s, 60s, 70s and even 80s, defendants claim the industry is on a pretty short leash now, making future fraud impossible.