Gansler: Company not complying with Tobacco MSA

John O'Brien Apr. 12, 2007, 2:00pm


BALTIMORE - In leading a national effort of state attorneys general, Maryland's Doug Gansler recently filed two actions against a tobacco company he says has violated the terms of the Tobacco Master Settlement Agreement.

Gansler says Cutting Edge Enterprises engaged in corporate transactions with the objective of avoiding payments to the state of at least $65.9 million.

The first-year attorney general filed his papers in Baltimore City Circuit Court. First, he filed a petition under state law seeking to forfeit Cutting Edge's corporate charter because of its alleged actions. Next, he filed an enforcement action under the MSA, alleging several violations.

The MSA allows approximately 40 tobacco companies to sell cigarettes in 46 states and six U.S. territories. It was negotiated largely by trial lawyers hired by the states.

The Competitive Enterprise Institute says trial lawyers were paid an estimated $13 billion for their work, which, in some occasions, amounted to tens of thousands of dollars per an hour of work. The settlement was worth $246 billion.

"Tobacco companies need to be held responsible for the health costs caused by the sale of their
cigarettes in Maryland and across the United States," Gansler said. "These actions will help ensure that parties to the Master Settlement Agreement do not escape that responsibility and will help protect our children from the dangers of smoking."

Cutting Edge joined the settlement in 2001, Gansler alleges, before going dormant. Gansler says the company did not make any MSA payments to the states, and the company's corporate charter was forfeited in 2002 by the Maryland Department of Assessments and Taxation.

In 2005, the company's charter was revived and Calvin Phelps, the owner of Alternative Brands, Inc., orchestrated a series of transaction by which he took ownership of Cutting Edge, Gansler said.

Gansler said Phelps is attempting to sell cigarettes in the MSA as Cutting Edge but outside it as ABI, even though the brands are being made by ABI. That allows him to avoid the $65.9 in payments, Gansler alleges.

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