Liggett in Talks to Aid Tobacco Industry Probe

Liggett, the smallest of the nation’s major cigarette companies, is negotiating an agreement with the U.S. Department of Justice that would grant the firm immunity in return for its help in the government’s continuing criminal investigation of the industry, according to sources close to the talks.

Bennett S. LeBow, chief executive of Brooke Group, Liggett’s parent company, said in a phone interview that he could not comment on the talks, but he added cryptically: “We’re trying to do the right thing.”

Justice Department officials also declined comment. The agency is probing--among other possible crimes--whether industry officials lied to government regulators.

Sources say that Stanley S. Arkin, a prominent New York attorney who specializes in white-collar crime, has represented Liggett in several meetings with the Justice Department’s fraud unit, which is playing a key role in the industry probe. LeBow and Arkin plan to meet with Justice Department officials today in Washington.

Arkin did not return calls seeking comment.

Rep. Martin T. Meehan (D-Mass.), who sent a lengthy memorandum to Atty. Gen. Janet Reno in late 1994 urging a federal criminal investigation of the $50-billion-a-year industry, said that a Liggett cooperation could have broad ramifications.

“If Liggett is turning state’s evidence, this could break the entire investigation wide open,” Meehan said. “From a prosecutor’s perspective, it’s important not only to have documents that indicate potential criminal behavior, but it is equally, if not more, important to have a witness who can confirm the information on the documents, particularly people from upper management.”

Among other things, the Justice Department is investigating whether tobacco officials violated a section of the U.S. Criminal Code that says it is illegal for an individual or corporation to “knowingly and willfully falsify, conceal or cover up by any trick, scheme or device a material fact, or make any false, fictitious or fraudulent statements” to “any department or agency of the United States.”

Other sources said Wednesday that Justice Department attorneys and FBI officials have intensified their probe of the cigarette companies in recent weeks and have been asking more detailed questions about individuals at the nation’s three largest companies--Philip Morris Co., R.J. Reynolds Tobacco Co. and Brown & Williamson Tobacco Corp.

Michael York, a spokesman for Philip Morris, said he had no knowledge of any discussions between Liggett and the Justice Department. However, he acknowledged that department officials have asked Philip Morris for materials in its investigation.

“We certainly have been cooperating with the requests of the Justice Department,” York said. “We’ve been providing documents and witnesses. We feel very strongly that the company has acted lawfully.”

Philip Morris’ defense against possible criminal charges is being coordinated by Robert Fiske, the former U.S. attorney in New York who preceded Kenneth Starr as the independent counsel investigating the Whitewater land deal.

In addition, the company has retained several other prominent criminal defense lawyers, including Earl Silbert of Washington, D.C., one of the Watergate special prosecutors, to represent current and former Philip Morris employees.

If Liggett consummates an agreement with the Justice Department, it will be the latest in a long line of steps the company has taken to part company with the rest of the industry.

In March 1996, Liggett reached a historic out-of-court agreement with five state attorneys who had sued the industry seeking to recover damages for tax money the states had spent treating indigent smokers. That was the first time any cigarette company had ever settled a health-related lawsuit.

Then in March 1997, Liggett-- which has only 2% of the cigarette market--reached a much broader agreement with the five original states and 18 others. In that agreement, Liggett acknowledged that nicotine was addictive and agreed to provide documents and other assistance to the attorneys general.

Since then, attorneys general and private plaintiffs’ lawyers have obtained thousands of internal Liggett documents, including nearly a thousand that the other companies fought to keep secret on the groundsthat they were entitled to confidentiality because of the attorney-client privilege or a legal doctrine known as the “joint defense privilege.”

Several judges have ruled that the documents should be made public because they showed evidence of a crime or fraud.

In addition, LeBow has testified in cases in Florida and Minnesota that smoking is addictive and has provided a list of ingredients in Liggett cigarettes to regulators in Massachusetts.

All the other companies have resisted disclosing that information and have challenged the state’s ingredient-disclosure law in court. Moreover, Liggett has placed new warning labels on its packages saying that smoking is addictive and causes cancer--which the other companies continue to challenge in court.

In a related development, a former R.J. Reynolds scientist admitted in a deposition obtained by The Times that when company officials used the word “satisfaction” in promoting their products this was a euphemism for “physiological need for nicotine.” Legal experts said that the Feb. 2 statement of Michael Shannon marked the first time an industry official had made such an acknowledgment under oath.

During Shannon’s deposition taken as part of three pending class-action suits, he was asked by Cleveland attorney Jack Maistros if there was a “universally accepted belief” at Reynolds “that satisfaction equated with physiological need for nicotine.”

Over the objections of an RJR attorney, Shannon responded, “Yes, that was understood.” At another point, Maistros asked Shannon, “Is there anything more important to the success of a cigarette than nicotine?” Shannon responded: “No. Nothing’s more important than nicotine.”