Former CEO convicted of fraud scheme in American Tissue case

Added April 4, 2012:

Former CEO convicted of fraud scheme in American Tissue case-April 13, 2005

　
The Death Of American Tissue Corporation-Oct 6, 2012

Winchester Paper Mill Lays Off Help-Feb 25, 2005

 Former CEO convicted of fraud scheme in American Tissue case

By Frank Eltman, Associated Press Writer April 13, 2005

NEW YORK --The former CEO of one of the nation's largest makers of paper products was convicted Wednesday of engineering a $300 million fraud in a futile bid to save the failing company from bankruptcy.

A jury returned its verdict against Mehdi Gabayzadeh after eight days of deliberations and a nine-week trial in U.S. District Court in Central Islip, on Long Island. He was convicted of all charges in an eight-count indictment, including bank and securities fraud and conspiracy.
Gabayzadeh, 60, of Great Neck, was accused of swindling banks, financial institutions and investors of nearly $300 million while he was chief executive of American Tissue Inc., once the nation's fourth-largest maker of toilet tissue and other paper products.

The company's failure caused mills in Berlin and Gorham, N.H., to close in September 2001, with more than 850 workers laid off. Another company has since bought the mills, which reopened in June 2002; it now employs about 600 people.

American Tissue's mill in Augusta, Maine, remains vacant, although potential investors from time to time have indicated an interest in trying to get it back in operation.

U.S. District Court Judge Joanna Seybert scheduled sentencing for July 8. Gabayzadeh faces a maximum of 60 years in prison, as well as fines and restitution.

Gabayzadeh's participation in a series of complex deals -- including the creation of phony documents indicating the company had sold million-dollar pulp contracts that didn't exist -- ultimately led to American Tissue's collapse.

Assistant U.S. Attorney John G. Martin hit on that theme during his summation.
"It is simply unreasonable to believe, to accept or even consider that the CEO ... simply steps back and doesn't get involved," he said.

The bogus deals were documented in part, to help American Tissue retain a revolving credit line with Chicago-based LaSalle Bank, prosecutors said. Without the line of credit, the company was doomed to fail, according to Ed Stein, the company's former chief financial officer who testified for the prosecution after pleading guilty to two federal charges of securities and bank fraud in 2003.

In his closing argument, Martin also told jurors that Gabayzadeh oversaw "a sinkhole of fraud" in his position atop the company that employed 4,700 workers in 15 states before its demise.
Defense attorney Raymond Perini portrayed Gabayzadeh as a hardworking Iranian immigrant duped by Stein.

"If Mehdi Gabayzadeh is guilty of anything, it was entrusting his life's work to the Steins of the world," Perini said in his summation, insisting his client was unfamiliar with accounting and U.S. business practices.

2005 The New York Times Company