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Government lays out fraud case against Big Tobacco

Justice: Companies collaborated on 'scheme to defraud'

From Tom Watkins

Justice Department

WASHINGTON (CNN) -- The Department of Justice laid out its $280 billion racketeering case against Big Tobacco on Tuesday, claiming the industry orchestrated a half-century scheme to defraud the American public.

"This case is all about fraud that continues to this day, designed to deceive the public," government lawyer Frank Marine said.

"The defendants believed that their economic survival depended on their scheme to defraud," he told U.S. District Court Judge Gladys Kessler, who will decide the case.

The industry's impact on the nation's public health is staggering, he said, citing studies that said cigarettes are responsible for one in five deaths in the United States -- nearly 500,000 per year.

Scientists began to learn about the health effects of cigarettes in the 1940s, when studies first showed a strong link between smoking and lung cancer, Marine said.

In December 1953, several tobacco companies and a public relations firm met at the Plaza Hotel in New York City, where the industry chiefs hatched their scheme, Marine said. The executives talked about how to keep news about health effects from causing their customers to quit and their bottom lines to shrink, he said.

One upshot from the meetings was the publication by the companies in January 1954 in 454 newspapers across the country of a "Frank Statement" that said the industry considered its customers' well-being to be "paramount" and included a vow to research the link between smoking and disease.

The advertisement added, "We believe that the products we make are not injurious to health."

To that, Marine said, "Well, these statements are lies."

During the 1953 meetings, the industry also agreed to form the Tobacco Institute Research Committee to study the health impact of smoking and the Tobacco Institute to disseminate information about the industry's products.

Marine dismissed the former as a group that attempted solely to create the false impression that there was a dispute among scientists as to whether cigarettes caused harm. He ridiculed the latter group as a "P.R. boot camp" intended to spread misinformation about the impact of tobacco.

As evidence of conspiracy, Marine cited one Tobacco Institute document that said the industry titans should work together.

"What affects one affects all," it said. "A united industry is our most potent P.R. tool."

It was that collaboration that turned into an "overarching scheme to defraud," said Sharon Eubanks, lead attorney for the government, who along with Marine delivered the five-hour statement.

She said seven "pillars" made up the scheme:

  • A campaign to deny that smoking and exposure to tobacco smoke cause adverse health effects in order to sow "fake doubt" in the evidence, thereby giving addicted smokers a reason to continue with the habit.
  • Propagation through the tobacco groups of the "myth" that the industry was researching its products.
  • Denial that nicotine is addictive.
  • Denial that cigarette makers manipulate nicotine levels to create and sustain addiction among their customers.
  • Marketing of "light" cigarettes as less hazardous, even though the industry's own evidence shows they are not, in order to give worried smokers an alternative to quitting.
  • Marketing to children as a way of replacing smokers who quit or died.
  • Suppression of evidence of smoking's danger by destroying some incriminating documents and sending others to other countries.
  • Eubanks read aloud from industry memos -- which she called "the tip of the iceberg." Some documents painted pictures of tobacco executives deeply concerned about their industry's prospects in the face of mounting evidence about the health effects of cigarettes.

    Tuesday's evidence included videotapes. In one, tobacco company CEOs testified to Congress in September 1994 that each man believed nicotine was not addictive.

    Eubanks presented a Tobacco Institute memo that she said explained why the industry had to hew to that line. "We can't defend continued smoking as free choice if the person was addicted," the memo said.

    Outside the courtroom, industry lawyers argued that Big Tobacco has changed in the wake of a 1998 settlement. Cigarette makers agreed with 46 states to pay $246 billion over 25 years to reimburse Medicaid for what it spent treating smoking-related diseases.

    Philip Morris attorney William Ohlemeyer said companies have acknowledged that nicotine can be addictive and is linked to disease.

    And the government is required by law to show the fraud is ongoing -- which it cannot, he said.

    The issue of sales to children goes to the heart of the case, and Marine said he would show documents indicating the industry researched behavior of children as young as 11.

    Marine cited a 1973 memo from the makers of the Kool and Lucky Strike brands that said Brown & Williamson's growth would come from smokers ages 16-25, and a 1978 memo from the makers of Newport, Lorillard, that said, "The base of our business is the high school student."

    He rejected the industry contention that it does not want children to smoke and that the $11.2 billion it spent last year on marketing was intended solely to try to persuade adult smokers to switch brands.

    Marine said the award sought by the government represented ill-gotten gains -- the money that the industry made from smokers who picked up the habit as children from 1971 -- when the Racketeer Influenced and Corrupt Organizations Act was passed -- until 2000.

    The government also wants the industry to fund youth antismoking campaigns and quit-smoking programs, he said.

    The industry makes its opening statement Wednesday. The trial is expected to last six months.

    The defendants include Altria Group Inc.; Philip Morris USA Inc.; R.J. Reynolds Tobacco Co.; Brown & Williamson Tobacco Corp. (which has merged with R.J. Reynolds); British American Tobacco (Investments) Ltd. (as the former parent company of Brown & Williamson); Lorillard Tobacco Co.; the Liggett Group Inc.; the Council for Tobacco Research-U.S.A. Inc.; and the Tobacco Institute.

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