CORPORATE CRIME REPORTER
Maryland
AG Wants Death Penalty for Tobacco Company
21 Corporate Crime Reporter 16, April 12, 2007
Maryland Attorney General Douglas F. Gansler wants the death penalty for a tobacco
company.
Gansler wants to yank the corporate charter of Cutting Edge Enterprises, Inc.
In papers filed in state court in Baltimore, the Attorney General alleges that the company engaged in a series of corporate transactions with the objective of avoiding the payment of $65.9 million to the state and circumventing the marketing and advertising restrictions aimed largely at preventing youth smoking.
Assistant Attorney General David Lapp is handling the case for the state of Maryland.
Lapp said that in 2001, Cutting Edge became one of about 40 tobacco companies to agree to the terms of the Master Settlement Agreement.
After entering the agreement, the company became effectively defunct – it didn’t sell any cigarettes or make any payments to the states, and in 2002, the company’s charter was forfeited.
Then in 2005, the company’s charter was revived and Calvin Phelps, the owner of Alternative Brands, Inc. (ABI), a large North Carolina-based tobacco company, orchestrated a series of transactions by which he took ownership and control of Cutting Edge.
Lapp said that Phelps is attempting to sell cigarettes with one foot in the Master Settlement Agreement as Cutting Edge, and another outside the agreement as ABI, even though all his cigarette brands are being made by the ABI factory.
Phelps’ scheme, if not prevented, would allow him to avoid payments of at least $65.9 million to the states, violate with impunity the public health protections of the agreement, and manipulate without the states’ agreement who is a party to the agreement, Lapp said.
Gansler has filed a petition seeking to forfeit Cutting Edge’s corporate charter based on its misuse and abuse.
He
has also filed an enforcement action under the Master Settlement Agreement alleging
several violations of the agreement.
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