News and Press Releases

Former President and Ceo of American Tissue Corporation Convicted of Conspiring to Commit $300 Million Bank and Securities Fraud after Ten-week Trial

April 13, 2005

ROSLYNN R. MAUSKOPF, United States Attorney for the Eastern District of New York, RONALD WALKER, Inspector-in-Charge, New York Division, United States Postal Inspection Service, and JOHN KLOCHAN, Acting Assistant Director-in-Charge of the Federal Bureau of Investigation in New York, announced today that MEHDI GABAYZADEH, former President and CEO of the Hauppauge, New York-based American Tissue Corporation, was convicted on all eight counts of an indictment charging him with conspiring to commit a $300 million bank and securities fraud that led to the to the bankruptcy of the paper manufacturer. The defendant was also convicted today of charges of wire fraud, interstate transportation of stolen property, bankruptcy fraud, conspiracy to commit perjury and obstruction of justice -- charges that arose out of GABAYZADEH's activities after American Tissue's bankruptcy, which left 2,700 workers unemployed, and closed paper and pulp mills located throughout the United States and Mexico.

GABAYZADEH, once head of the fourth-largest tissue paper and pulp manufacturing company in America, was found guilty on all charges in an eight-count indictment following a ten-week jury trial in United States District Court in Central Islip, New York. Following the guilty verdict, U.S. District Judge Joanna Seybert ordered the defendant to be immediately jailed pending sentencing, which is scheduled for July 8, 2005.

GABAYZADEH was indicted in March 2003, on securities fraud, bank fraud and conspiracy arising from his efforts to inflate American's Tissue's accounts receivables and net income in an effort to defraud a group of banks that had loaned GABAYZADEH's company $145 million, as well as bondholders who in1999 purchased $165 million in American Tissue bonds. In April 2004, a superseding indictment was returned charging GABAYZADEH with additional crimes, including bankruptcy fraud, conspiracy to commit perjury and obstruction of justice as he attempted to fraudulently acquire assets of the dying and bankrupt American Tissue by submitting false documents and directing a subordinate to give false testimony in a June 2002, federal bankruptcy court proceeding.

In announcing the conviction, United States Attorney ROSLYNN R. MAUSKOPF stated, "This massive corporate fraud was a classic case of greed, lies and obstruction. Today's conviction demonstrates our commitment, as part of the President's Corporate Fraud Task Force, to investigating and prosecuting corporate fraud to the full extent of the law." Ms. MAUSKOPF thanked the Securities and Exchange Commission for its invaluable assistance during the investigation.

United States Postal Inspector-in-Charge RONALD C. WALKER stated, "This proves once again how the U. S. Postal Inspection Service and other members of the President's Corporate Fraud Task Force will spare no expense or effort to identify, investigate and prosecute those responsible for securities fraud. The defendant's actions not only caused the loss of millions of dollars in corporate holdings but also hundreds of jobs of hard-working employees of the American Tissue Corporation. This 10-week trial, resulting in a guilty verdict, is a testament to the diligence and commitment as public servants of postal inspectors, Assistant U. S. Attorneys of the Eastern District of New York, FBI agents and members of the SEC. I commend them all for a job well done."

FBI Acting Assistant Director JOHN KLOCHAN stated, "Corporate accounting fraud is not just an internal problem. When the corporation in question is a publicly traded company, or when it sells bonds to raise capital, or even when the corporation simply conducts business, investors and others need complete and truthful information about the financial health of the company. Due diligence is only an effective safeguard against an unwise investment or business deal when the information being analyzed is factual, not fictional."

When sentenced, GABAYZADEH faces a maximum of 60 years' imprisonment. On each count of conviction, GABAYZADEH faces a $250,000 fine, or twice the gross gain or loss resulting from the offenses, whichever is greater, the payment of restitution, and three years supervised release. The indictment also seeks to forfeit any and all property of the defendant constituting or derived from proceeds traceable to the offenses. A trial on the forfeiture allegations is scheduled to be held before Judge Seybert on May 16, 2005.

The government's case was prosecuted by Assistant United States Attorneys James Miskiewicz and John G. Martin.

The Defendant:

Address: Kings Point, New York
DOB: 10/27/44

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