Accounting & Tax

Ex-CEO of American Tissue Gets 15 Years

Mehdi Gabayzadeh was sentenced Monday for a $300 million fraud. American Tissue's CFO, Edward Stein, pleaded guilty several years ago.
Stephen TaubSeptember 25, 2006

Mehdi Gabayzadeh may not be as familiar a name as Bernie Ebbers or Ken Lay, but the judge who sentenced him Monday stressed that the misdeeds of the former CEO of American Tissue Inc. were no less damaging to victims.

After several delays, U.S. District Court Judge Joanna Seybert sentenced Gabayzadeh, the former chief executive officer of American Tissue Inc., to 15 years in prison after being convicted last year of spearheading a $300 million fraud in an unsuccessful attempt to prevent the company from filing for bankruptcy, according to the Associated Press.

Gabayzadeh also was ordered to pay $65 million in restitution and received five years’ probation after his prison term, according to the report.

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“The purpose of this sentence is to demonstrate that white-collar crime hurts just as much as blue-collar crime,” said Seybert at the sentencing, according to the wire service.

Last year, Gabayzadeh was convicted of all eight charges, including bank and securities fraud and conspiracy, according to the report.

His sentencing was delayed several times because his attorneys asserted that Gabayzadeh was suffering from a number of ailments. According to the AP, before Monday’s sentencing, his attorneys asserted that Gabayzadeh suffers from diabetes, high cholesterol and bipolar schizophrenia and that he has lost over 60 pounds since his conviction.

The judge, however, seemed unsympathetic, invoking other recently convicted, high-profile corporate chieftains, including Adelphia Communications Corp. founder John Rigas, former WorldCom’s Ebbers, and Enron Corp.’s Lay.

“I can’t predict how long you’re going to live any more than the court could predict how long Mr. Rigas would live, any more than anyone could have predicted how long Mr. Lay was going to live,” said Seybert, noting that Lay died in July only a few weeks after being convicted of fraud.

Gabayzadeh was accused of stealing nearly $300 million from banks, financial institutions and investors from a series of bogus deals — including the creation of phony documents indicating the company had sold million-dollar pulp contracts that didn’t exist — according to the AP.

“Like Gabayzadeh, Rigas lied to public investors about Adelphia’s financial and operational performance,” U.S. Attorney Roslynn Mauskopf reportedly wrote in a pre-sentencing letter. “Like Gabayzadeh, Ebbers claimed at trial that the frauds at his company were perpetrated solely by his employees, including the company’s CFO, and that he was unaware of them.”

On September 7, 2001, reported that American Tissue CFO Edward Stein had resigned after it became apparent that the company’s financial statements contained ”material inaccuracies.” Stein pleaded guilty to charges against him.

Last year, the SEC filed civil fraud charges against three former executives of Arthur Andersen stemming from their 2000 audit of American Tissue.

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