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Seneca cigarette dealer files for bankruptcy

One of the biggest movers of Native American-made cigarettes has filed for federal bankruptcy protection, a month after a court said the wholesaler is responsible for potentially tens of millions of dollars in federal tobacco assessments.

The Chapter 11 reorganization filing by Arthur Montour, owner of Native Wholesale Supply on the Seneca Indian Nation's Cattaraugus Reservation, lists more than $50 million in liabilities by the businessman who has become wealthy by moving billions of cigarettes made on an Ontario reservation to other tribes across the United States.

The company and its Ontario cigarette partners, the subjects of a 2009 investigation by The Buffalo News, also listed as creditors a half-dozen states that have brought various lawsuits against Native Wholesale Supply over its tobacco-distribution practices.

But Montour's biggest creditor - at $43 million - is the U. S. Department of Agriculture, which brought his company to court for failing to pay into a federal trust fund designed to move tobacco growers away from a regulated price market and into a free-market system.

In October, U. S. District Judge Richard J. Arcara ordered Montour's company to comply with the terms of the Fair and Equitable Tobacco Reform Act of 2004 and pay into the tobacco trust fund. In his company's Chapter 11 filing with the U. S. Bankruptcy Court in the Western District of New York, Montour listed the $43 million owed to the Agriculture Department as an unsecured claim.

Montour acts as a wholesaler of cigarettes - chiefly the Seneca brand-made by Grand River Enterprises, a plant on the Six Nations of the Grand River Indian Reservation in Ohsweken, Ont., near Hamilton.

The cigarettes cross the border near Buffalo and head to various warehouses, including a duty-free zone in Las Vegas, before being sold to tribes across the country. They, in turn, sell the cigarettes tax-free. The cigarettes also are sold by Indian retailers in New York, including most Seneca Nation merchants.

Montour, a former Seneca Tribal Council member, had his Perrysburg company incorporated by the Sac and Fox Nation in Oklahoma.

Several states have sued Montour's company for various reasons, including alleged violation of cigarette- shipment laws and sale of cigarettes that do not meet fire-safety standards.

"The [bankruptcy] filing automatically stayed our case against Native Wholesale Supply," said Diane Clay, Oklahoma Attorney General's Office spokeswoman.

Oklahoma went after Montour's company in court, alleging that he failed to make required payments into an escrow account created in the wake of a landmark 1998 settlement by 49 states and the nation's major tobacco companies.

In court papers filed last week in U. S. Bankruptcy Court in Buffalo, the State of Oklahoma-at $5.1 million - is listed as the second-largest unsecured claim for Montour's wholesale company.

Other creditors include U. S. Customs and Border Protection, which is owed $2.6 million for excise taxes and customs duties for the cigarettes crossing the border into the United States, and the U. S. Food & Drug Administration, which is due $1.1 million for estimated quarterly importation taxes.

In Idaho, which has had a long-standing court battle with Montour, officials found out last week about the bankruptcy filing. A judge has ordered Montour to pay $250,000 in civil penalties and other costs in a court case there.

"We're still digesting this and considering our options," said Brett

T. DeLange, head of the Consumer Protection Division of the Idaho Attorney General's Office.

Other creditors include the states of New Mexico and California, which has ongoing litigation with Montour over its claims that hundreds of millions of cigarettes were illegally shipped to Big Sandy Rancheria, a California tribe.

While the bankruptcy filing shows potential big bills for Montour's company, it also says the firm has assets valued at between $50 million and $100 million-the same broad range as the listed liabilities. Under Chapter 11, the company is seeking to stay in business as it attempts to reorganize.

The papers say Montour's company has up to $18 million in various forms of indebtedness with the Canadian cigarette manufacturer. The company plans to continue selling cigarettes during the bankruptcy proceeding - using credit and cash collateral to buy products from Grand River.

The court documents say Montour's company needs $15 million a month to keep operating. Estimated monthly payments include $11.5 million to several federal agencies for excise taxes and $3 million to Grand River for the cost of cigarette purchases.

In 2009, The News reported on the massive sales operation behind the movement of the Seneca brand made by a private company on land owned by the Ontario tribe. The investigation, which spawned a separate Seneca Nation probe into the brand, included concerns by Roswell Park Cancer Institute scientists about potentially dangerous metallic elements in Seneca Light cigarettes that it had tested by a lab in Scotland at the time.

Sales of the brand have spawned everything from dozens of lawsuits in various states to challenges over whether the sales comply with the North American Free Trade Agreement. Tobacco executives at the time estimated that the Seneca brand alone may have had as much as 10 billion cigarettes sold annually.

The Cuomo administration has cracked down on tax-free sales by Native Americans of premium, domestic- brand cigarettes while holding off on tax collections of the Indian- made products.

Seneca leaders have vowed litigation if the state tries to halt those tax-free sales, arguing that the products, by being made on Indian lands, are free from taxation.

Published: Wednesday, December 07, 2011

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