Federal prosecutors indicted four former executives of American Tissue Inc., including its president for defrauding…
Federal prosecutors indicted four former executives of American Tissue Inc., including its president for defrauding banks and investors of nearly $300 million.
American Tissue’s top executives in July 1999 secured $145 million from LaSalle National Bank by recording $25 million worth of non-existent sales, the indictment alleges. In August 2001, LaSalle uncovered the allegedly bogus sales. The top executives met with Andersen’s top auditors to discuss the alleged fraud.
Mehdi Gabayzadeh, founder and president, and Amzad Ali, purchasing manager, surrendered to FBI agents and postal inspectors at the federal courthouse. Gabayzadeh faces up to 45 years in jail if convicted on charges of securities fraud, bank fraud and conspiracy. Ali could serve up to 35 years if convicted of conspiracy and bank fraud. Both pleaded not guilty during arraignment. Gabayzadeh was released on bail for $5 million and $250,000 for Ali.
Chief financial officer Edward I. Stein and finance vice president John Lorenz pleaded guilty to sealed indictments and await sentencing. Stein faces a maximum of 35 years in prison plus fines for conspiracy to commit securities fraud and bank fraud. Lorenz could serve up to five years and pay fines for conspiracy to commit securities fraud.
Roslynn Mauskopf, the U.S. attorney in Brooklyn, NY also announced that senior auditor Brendon McDonald of the Arthur Andersen accounting firm had been arrested. McDonald was charged with obstruction of justice for allegedly destroying the firm’s paperwork on the American Tissue account. He allegedly left urgent phone messages telling other staffers to delete their American Tissue computer files and shred any relevant papers. He pleaded not guilty and was released on bail for $50,000.
American Tissue was the fourth-largest U.S. manufacturer of toilet paper, napkins and paper towels. It filed for bankruptcy in September 2001.
The Securities and Exchange Commission also filed civil fraud charges against American Tissue.
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