The Justice Department Expands Its Probe of Tobacco Companies

TOBACCO October 1996

A Justice Department investigation that has been probing suspected perjury by several tobacco executives for April 1994 congressional testimony has expanded into an extensive investigation of fraud (Reuters, "Philip Morris Executives Ordered to Testify in U.S. Probe," San Francisco Chronicle, August 31, 1996, p. A5; Alix M. Freedman, "Consolidated Tobacco Probe Shifts Focus," Wall Street Journal, September 3, 1996, p. B9; Pierre Thomas and John Schwartz, "U.S. Widens Tobacco Investigation," Washington Post, September 8, 1996, p. A1; Pierre Thomas and John Schwartz, "U.S. expands its probe of tobacco executives," Philadelphia Inquirer, September 8, 1996, p. A3).

The Washington, D.C. perjury investigation was combined with a securities fraud investigation by the U.S. attorney's office in New York to broaden and consolidate the Justice Department's focus. New York prosecutors had pursued an unusual legal theory: that tobacco companies committed stock fraud when they withheld information about the dangers of their product from the public. The consolidated investigation, monitored by Attorney General Janet Reno, centers on whether tobacco industry officials made false or misleading statements to Congress, government agencies and the American public. In 1994, Representatives Henry A. Waxman (D-CA) and Martin T. Meehan (D-MA) asked Reno to investigate because sworn statements by tobacco executives before a House committee appeared to conflict with industry documents and statements by former employees. Federal investigators are also trying to determine whether tobacco officials manipulated nicotine research.

If the department proves an effort to mislead or conceal information from federal officials, the law allows a maximum penalty of five years in prison and a $250,000 fine for each false statement. Justice Department officials have said that if criminal charges come out of the probe, they probably will not be brought until next year due to the complexity of the investigation.

Federal investigators initially targeted current and former mid-level managers because they are "people in the know who are not necessarily responsible [or culpable] for the decisions," said one senior law enforcement official. Government agents served several Richmond-area Philip Morris employees with a subpoena to testify before a Washington, DC grand jury -- under threat of perjury charges if they do not tell the truth. The government has also demanded documents from the company.

Philip Morris is the only company acknowledging receiving subpoenas. "The company has received requests for documents and testimony and is cooperating fully," said Philip Morris, the world's largest cigarette maker. People familiar with the matter say that R.J. Reynolds Tobacco Company and Brown and Williamson Tobacco Corporation employees will also receive subpoenas.