The maneouvre, which smashed four decades of unity in the industry in fighting liability lawsuits, transformed Mr LeBow, 58, into the nemesis of the rest of the cigarette industry and the hero of America's growing anti-smoking community. Behind it, however, was one clear aim: to clinch his campaign to take control of the giant RJR Nabisco and force it to spin off its cracker-and-cookie food division from its cigarette-making interests.
With the former TWA chief executive, Carl Icahn, at his side, Mr LeBow began his assault on RJR last autumn. With 5.8 per cent of the company's stock in his pocket, he recently won - though only just - a non-binding vote of shareholders in favour of an immediate Nabisco spin-off. Victory will be his if, at the annual general meeting of RJR on 17 April, he can force through his own alternative set of directors to implement the break- up.
While certainly audacious, such machinations are not out of character for the financier, who has long enjoyed a reputation for breaking the corporate china for his own gain. His taste for buying and selling assets, mostly when in wobbly shape, came to the fore in the 1980s, when his acquisitions included that of Liggett itself from Britain's Grand Met as well as the US division of the British precious metals concern, Johnson Matthey.
As a director of the Brooke Group since 1986 (and its president since 1990), Mr LeBow has faced accusations from fellow shareholders of plundering its coffers to finance various indulgances which have included a $21m (pounds 14m) yacht, a jet and lavish parties for friends. Of the public companies within Brooke two - MAI Systems and New Valley Corporation - were driven into bankruptcy. New Valley survived only after Mr LeBow was forced to sell off its most famous asset, the Western Union money-transfer business.
At first sight, his Liggett bombshell seemed as inspired as it was unexpected. He announced settlements in both a high-profile class-action suit being brought against the entire tobacco industry by a coalition of 60 law firms on behalf of a friend of someone who died from the effects of smoking, and with five US states that are suing for compensation for the public health costs incurred in the treatment of people with smoking-related diseases.
The smallest of the US tobacco concerns, Liggett stands to suffer only minimal financial pain from the agreement. It is likely to pay out only about $2 million a year over the next 25 years to gain immunity from the lawsuits. Mr LeBow's real trick was this, however: under the settlement, the plaintiffs will also offer the same terms to RJR if Mr LeBow succeeds in his quest to have it separated from Nabisco. It is only because of the looming spectre of these court battles that the current management of RJR Nabisco has been holding out against any immediate spin-off.
But it is the view of most analysts on Wall Street that the strategy has backfired on Mr LeBow in disastrous fashion. "He obviously thought it was a brilliant ploy, but it has turned out to be a flop," Allan Kaplan, a tobacco watcher at Merrill Lynch, contended last week. Mr Kaplan is confident that RJR will prevail at the AGM.
Mr LeBow has been blown off course by the extraordinary bruising inflicted over the past two weeks on tobacco stocks. In five trading days to last Wednesday, RJR Nabisco saw its share price slide by 15 per cent while Philip Morris fell 16 per cent.
Much else, of course, has happened in recent days to contribute to the rout. Last week, the Food and Drug Administration revealed it had garnered statements from three former Philip Morris scientists disputing the company's assertions that it has never played around with nicotine levels in its products. Philip Morris was forced to run full-page newspaper advertisements refuting the implication that it had "manipulated" nicotine levels, which implies seeking to turn smokers into addicts.
Also coming to light is a broadening effort by the US government to investigate cases where it suspects that the tobacco companies have consistently and deliberately misled the authorities and consumers about how much it understood about the addictive qualities of nicotine.
But it was Mr LeBow's action that started the share-price slide. Noting that many RJR Nabisco shareholders also have stock in Philip Morris, Roy Burry, of Oppenheimer and Co, remarked: "Has he made shareholders mad at him? Certainly, he has not made many new friends anywhere and that is a problem for him." Of the annual meeting, he adds: "He will lose."
And Mr LeBow may find he has opened the gates to a flood of new and hitherto undeclared public lawsuits. On one thing everyone seems agreed. If Mr LeBow is defeated on 17 April, he can forget his RJR dreaming. "That will be it for him. He will be out of there," says Mr Burry.