Bennett LeBow, CEO of Liggett Groups stunned the other tobacco companies by
settling out of court with five states and class action lawyers. All
negotiations had been kept secret and by settling separately LeBow was breaking
the myth that the tobacco industry was a monolith.
The settlement would free Liggett from lawsuits filed to recover Medicaid
money spent on sick smokers for which LeBow agreed to pay less than $26 million
- $5 million over the next 10 years and as much as 7.5% of Liggett's pretax
profit for up to 25 years.
Liggett was quickly running out of money and LeBow figured that even if one of
the five states suing the tobacco companies prevailed in court, Liggett Group
would go bankrupt paying its share of the judgments. LeBow insured his
company's survival by settling separately.
By March 1997, LeBow was once again worried about his company's future and was
getting desperate to cut a deal.
The states wanted LeBow to admit that the nicotine in his cigarettes was
addictive and they wanted the company to turn in confidential tobacco documents
showing that Big Tobacco conspired to cover up internal activities from
In exchange LeBow wanted the settlement to include all cases brought by
The second settlement was announced on March 20th. Liggett admitted for the
first time that tobacco was addictive and causes cancer, going against what the
seven industry leaders had sworn before Congress on April 14, 1994. According
to the settlement the company agreed to label all its cigarette packages with a
warning that "smoking is addictive." In addition, Liggett agreed to pay 25% of
it's annual pretax income over the next 25 years to the states that had sued
for Medicaid reimbursements (which based on 1996, that amounted to nothing per
year because Liggett had a pretax loss of 14.6 million). Liggett would also
have to turn in document that showed that Big Tobacco covered up research into
health risks and schemed to prevent investigators from finding data.
Liggett's unprecedented concessions represented a serious blow to the
industry. Cigarettes company stocks plunged immediately.
In late April 1998, the Justice Department announced it had secured the
cooperation of the Liggett Group Inc. in Justice's criminal investigation into
the tobacco companies.. The agreement was reached despite Justice refusing to
grant the firm's request for immunity from prosecution.
Click here for more about the
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will there be a deal? .
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big tobacco - what's at stake .
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