Auditing

Ex-Andersen Partner Settles Up with SEC

He was blamed for helping American Tissue in a $300 million fraud seven years ago and covering up auditing failures.
Stephen TaubOctober 22, 2007

A former partner at Arthur Andersen settled civil charges that he helped American Tissue commit a $300 million fraud. Without admitting or denying the allegations, Fred Gold agreed to pay a $100,000 civil penalty and to a suspension from practicing as an accountant.

The Securities and Exchange Commission’s complaint alleged that in fiscal-year 2000, American Tissue fraudulently inflated reported assets and earnings by improperly capitalizing $15.6 million of previously expensed supplies and overvaluing its finished goods inventory by at least $12.5 million.

Gold, who supervised, reviewed, and approved Andersen’s audit of American Tissue’s fiscal 2000 financial statements, “knew or was reckless in not knowing that American Tissue’s finished goods inventory was overstated” and that supplies had been improperly classified, according to the regulator.

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The SEC alleged that in July 2001, when he learned the fiscal 2000 American Tissue audit had been selected for a peer review by another accounting firm, Gold directed others to alter audit work papers in an attempt to conceal audit work failures.

The commission also claimed that Gold destroyed documents and e-mails in a further attempt to conceal the audit failures when, in September 2001, he learned that the other accounting firm had discovered that American Tissue had overvalued inventory and would have to restate financial results for fiscal 2000.

Two other former Arthur Andersen employees, audit manager John Parson and senior accountant Brendon McDonald, previously agreed to settle without admitting or denying allegations. Parson agreed to pay a $50,000 civil penalty and be suspended from appearing or practicing before the SEC as an accountant. McDonald agreed to a $30,000 penalty and to a five-year suspension, after which he can apply for reinstatement.

The SEC earlier had filed a separate federal civil action against American Tissue, a maker of paper products that filed for bankruptcy in 2001, and three of its principal officers. That action has been stayed pending sentencing of the three officers in a related criminal proceeding, the SEC noted.

American Tissue’s former CEO, Mehdi Gabayzadeh was sentenced in September 2006 to 15 years in prison after being convicted the previous year of spearheading the $300 million fraud in an unsuccessful attempt to prevent the company from filing for bankruptcy. Gabayzadeh also was ordered to pay $65 million in restitution and received five years’ probation after his prison term.

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