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Counterfeit Cigarettes

Five importers who allegedly delivered more than 215,000 cartons of fake Marlboros and other Philip Morris-brand cigarettes are being sued by the tobacco giant, along with nearly 1,500 retailers who are accused of selling the bootleg smokes.

The lawsuit, filed Monday in federal court, follows an undercover audit earlier this year during which Philip Morris says cigarettes were purchased from every known retailer in the Los Angeles area. The defendants include small convenience stores, liquor stores and even doughnut shops.

Contraband tobacco is a relatively recent phenomenon brought on by a sharp increase in the price of cigarettes that was caused by higher tobacco taxes, according to Jack Holleran, senior vice president of compliance and brand integrity at Philip Morris.

"As an unintended consequence (of tax increases), we have seen an emergence of contraband cigarettes in the U.S.," he said.

More than 20 states increased their cigarette taxes last year, and a pack of smokes now ranges from $3 in Virginia to $7.50 in New York, Holleran said.

In California, the state Board of Equalization, which deals with tax matters, estimates it loses as much as $270 million a year due to a variety of tobacco-related tax evasion schemes.

Most of the counterfeit cigarettes bought in Southern California bore the Marlboro brand and were found to contain tobacco grown in China, Holleran said. Many of the packs also had counterfeit tax stamps.

Information from the audit has been turned over to state and federal authorities for possible criminal action.

Monday's lawsuit follows similar legal action by Philip Morris against 612 retailers, most of them in California. Many of the retailers have entered into consent agreements with the company and were not found to be selling counterfeit cigarettes in subsequent visits, the company said.

Lawsuits have also been brought against retailers in New York, Arizona, Florida and other states.

By Gary Gentile