Former state Rep. Richard Morgan defends actions he took in 2003, as House co-speaker, to kill legislation that would have hurt small tobacco companies.

"It was nothing more than the big boys trying to beat out the little boys," Morgan says.

S&M Brands of Keysville, Va., a small cigarette maker that stood to lose plenty if a Senate bill backed by big tobacco companies had passed, contributed $100,000 in 2004 to a nonprofit political group that Morgan formed to promote his leadership and attack his opponents.

The contribution to the N.C. Republican Main Street Committee helped finance the re-elections of Morgan and some of his closest allies.

Morgan was served with a federal subpoena in November to testify before a grand jury investigating corruption.

Among other things, federal investigators were seeking information from Morgan about the $100,000 contribution from S&M Brands. He testified in December.

'Complicated Issue'

The bill would have changed the Master Settlement Agreement (MSA) to prevent small companies from removing money from an escrow account set up to cover any awards that states might seek in future tobacco lawsuits.

"It started for me when a trusted colleague (former Rep. Julia Howard) came to me about a mom-and-pop company in her district (Alternative Brands) that would have been hurt," he says. "I went to hear their story. Sabra (Sabra Faires, then Morgan's chief of staff) was pretty smart about that MSA. It is a pretty complicated issue."

A year before, Morgan says, attorneys for the smaller companies wanted to make a change in the settlement agreement, but the big companies objected.

"They said it was sacrosanct, that it can't be changed," Morgan says. "Then they come back a year later and want to modify it What changed in a year?"

The bill had passed the Senate without dissent. Before the House could vote, Morgan moved it to the Rules Committee, where many bills get buried.

Don Beason, a lobbyist for S&M Brands, says the family-owned company's donation to Morgan's Main Street Committee was "an open, clean contribution that was reported at the time it was given." He says that Malcolm Bailey, president and CEO of the Keysville, Va.-based company, is "as honest a human being as I've ever dealt with."

'Nothing Unusual'

Bailey personally contributed $4,000 to Morgan's campaign committee in 2003 and $4,000 in 2005, according to campaign finance reports. He listed his occupation on the reports as a tobacco farmer.

Everett Gee, S&M Brands' corporate counsel, told The News & Observer of Raleigh in 2004 that the company appreciated Morgan's effort to quash the bill. But he said it had nothing to do with the company's $100,000 donation of April 29, 2004. The Pilot was unable to reach him for comment.

"Our company is very politically active, and traditionally we've been involved in Republican politics as far as individual family members," Gee told The N&O. "So it's nothing unusual for us to support good conservative candidates."

Morgan's political opponents formed a nonprofit group of their own, the Republican Legislative Majority of North Carolina, which raised $200,000 from Variety Stores of Henderson. The company is a subsidiary of Variety Wholesale of Raleigh. Its president, Art Pope, is a former state representative and a Morgan enemy.

Pope said the contribution certainly created an impression of a politician being influenced by big-money special interests.

"We had no legislation of interest pending before the General Assembly at the time," Pope told The Pilot.

Morgan contends that he was unaware of the donation and that it had nothing to do with killing the legislation that would hurt small companies such as S&M Brands and Alternative Brands.

"You can't pay me a million dollars to influence my opinion," Morgan said.?