Judge rules government can seek money from tobacco industry

Tuesday, May 25, 2004

WASHINGTON -- A federal judge ruled Monday the Justice Department can seek $280 billion from the tobacco industry as part of the government's lawsuit against cigarette manufacturers, clearing the way for the biggest civil racketeering case in history.

The ruling by U.S. District Judge Gladys Kessler sent tobacco company stock prices tumbling.

The Justice Department alleges tobacco companies deceived the public about the dangers of tobacco and the addictive nature of nicotine. The government also claims the companies targeted children through advertising and then lied about it.

The industry had argued in a motion that the government should not be allowed to seek $280 billion, arguing prosecutors failed to distinguish between money allegedly earned through fraud and money earned lawfully.

Kessler said in a written ruling that whether the government sought the correct amount should be determined at trial. She also warned the companies could be ordered to hand over the money if Justice lawyers demonstrate a reasonable likelihood the industry will violate racketeering laws in the future.

Philip Morris USA attorney Bill Ohlemeyer said the government would have trouble proving future wrongdoing. "There is no question that Philip Morris USA and other tobacco companies have dramatically changed the way their products are marketed," Ohlemeyer said.

He said Philip Morris, the largest U.S. cigarette manufacturer, was considering appealing Monday's ruling.

R.J. Reynolds Tobacco Corp. also was considering that, company spokesman Seth Moskowitz said.

Anti-smoking groups applauded the ruling in the case, which the Bush administration inherited from the Clinton administration.

"It's a critical victory for the government because it allows the government to seek the full range of remedies that are available" under the federal racketeering statute, said Bill Corr, executive director of the Campaign for Tobacco-free Kids.

Tobacco stocks fell sharply on the news.

Shares of Altria Group Inc., parent of Philip Morris USA, fell $4.37, or nearly 9 percent, to close at $44.95 on the New York Stock Exchange. RJ Reynolds Tobacco Holdings shares fell $3.53, or 6 percent, to $53.73. Shares of Loews Corp., the parent company of Lorillard, fell $1.91 to $56.40 on the NYSE.

Government lawyers are pursuing the civil case under the Racketeer Influenced and Corrupt Organizations Act, known as RICO. The 1970 law was created to prosecute mobsters.

Six years ago, 46 states settled their suit against the industry for $206 billion, payable over 25 years. Four states settled separately for a total of $40 billion.

The states recovered costs for treating sick smokers.

Kessler rejected a bid by the federal government to similarly recoup the costs of treating sick smokers, but she did allow the racketeering case to proceed. It is the largest amount ever sought under the racketeering statute.

In addition to seeking the money, the government wants the judge to impose new restrictions on the industry, including banning vending machines, forbidding certain marketing terms and limiting in-store promotions.

The defendants are Philip Morris USA Inc. and its parent, Altria Group Inc.; R.J. Reynolds Tobacco Co.; Brown & Williamson Tobacco Co.; British American Tobacco Ltd.; Lorillard Tobacco Co.; Liggett Group Inc.; Counsel for Tobacco Research-U.S.A.; and The Tobacco Institute.

The trial is scheduled to begin Sept. 13 in the U.S. District Court for the District of Columbia.

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