The lawyer made the allegation on Tuesday at the start of a civil racketeering trial in which the government seeks a record $280 billion from the industry.
In his opening statement, Justice Department attorney Frank Marine said starting in the 1960s the industry spent hundreds of millions of dollars on organisations set up to counter the growing body of scientific evidence linking smoking to cancer.
He cited internal industry documents showing company executives knew they were trying to deceive the public.
"The problem to them was that the public might stop smoking because of health concerns," he said.
Prosecutors say the scheme had
The industry created the Centre for Tobacco Research and the Centre for Indoor Air Research to rebut scientific findings about smoking and the dangers of second-hand smoke, and set up the Tobacco Institute to promote their findings and otherwise serve as a public relations and lobbying arm, he noted.
Marine said the goal was to create a controversy where none existed. He said the "massive scheme" was successful and has had devastating consequences, citing the nearly half-million Americans who die from smoking-related illnesses each year.
Industry lawyers were scheduled to make their opening statement on Wednesday.
The defendants in the case are Philip Morris USA Inc and its parent, Altria Group Inc; R J Reynolds Tobacco Co; Brown & Williamson Tobacco Co; British American Tobacco Ltd; Lorillard Tobacco Co; Liggett Group Inc; Counsel for Tobacco Research-USA; and the Tobacco Institute.
Industry lawyers have acknowledged tobacco executives may have expressed doubts about public health concerns in the past, but say that does not amount to fraud.
"Fraud is, 'I have a specific intention to mislead you or take money from you by deceiving you'," said Philip Morris USA attorney William Ohlemeyer. "Fraud is a very high bar."
The case is "an important effort to prevent fraudulent activity and uphold corporate integrity"
The industry settled legal cases with the states over smoking-related health costs for $246 billion. Those agreements, reached in the late 1990s, led to limits on advertising and marketing and shuttered industry lobbying and research organisations.
The government brought the racketeering case in 1999, when the Clinton administration was in power and has spent $135 million pursuing it. The non-jury trial is being heard by US District Judge Gladys Kessler and is expected to take up to six months.
In a statement issued just before the start of the trial, Attorney General John Ashcroft called the case "an important effort to prevent fraudulent activity and uphold corporate integrity."