Federal authorities on Monday disclosed securities and bank fraud charges against executives of now-bankrupt American Tissue Inc., whose 2001 collapse cost investors and banks roughly $300 million. A former auditor for Arthur Andersen LLP also was indicted for allegedly shredding documents relating to privately held American Tissue, once the nation's fourth largest paper and tissue manufacturer based in Hauppauge, N.Y., according to the U.S. Attorney for the Eastern District of New York. The Andersen accounting firm, brought down in the scandal at its client Enron Corp., was convicted last year of obstructing a government probe into the energy giant. In this case, four American Tissue employees, including former chief executive Mehdi Gabayzadeh, were accused of falsifying accounts, recording phony sales and filing fake financial reports that allowed the company to borrow heavily, prosecutors said. When American Tissue filed for Chapter 11 bankruptcy protection in September 2001, it owed $145 million to a syndicate of banks and lending firms, headed by LaSalle National Bank Association, and $160 million to bondholders. American Tissue had obtained a line of credit secured by inventory and accounts receivable and undertook an aggressive expansion strategy from 1999 to 2001 despite a depressed paper market, prosecutors said. But company executives had recorded some $25 million in phony sales which they cited as collateral, diverted tens of millions of dollars to pay other debts and inflated accounts receivable by falsely claiming it sold more than $20 million in inventory, prosecutors said. The fake accounts receivable were claimed in a 2001 filing with the Securities and Exchange Commission, they said. "The defendants' fraud scheme, when pared down to its essentials, was really quite simple," said U.S. Attorney Roslynn Mauskopf in a statement. "As American Tissue's business began to fail and its lenders became alarmed, the defendants created bogus accounts receivable to give the appearance of a profitable company and thereby allow the company to borrow even more investor funds. "This is a classic case of corporate greed, fraud and obstruction," she said. With the collapse of the company, which owned facilities and mills throughout the United States and Mexico and had 27 subsidiaries, many of its 2,700 employees lost their jobs, prosecutors said. Named in the indictment were Gabayzadeh, accused of securities fraud, bank fraud and conspiracy; former employee Ali Amzad, indicted for conspiracy and bank fraud; former indirect owner Super American Tissue Inc., indicted for bank fraud, wire fraud and conspiracy; and American Paper Corp., owned by Gabayzadeh and indicted for wire fraud. Former senior Andersen auditor Brendon McDonald was charged with obstruction of justice. McDonald had Andersen forward American Tissue documents to his home and arranged for a shredding company to destroy several bins of American Tissue documents, prosecutors said. If convicted, McDonald faces a possible sentence of 10 years in prison, a $250,000 fine and restitution. Authorities also revealed that former American Tissue chief financial officer Edward Stein pleaded guilty to securities and bank fraud charges and former vice president of finance John Lorenz pleaded guilty to conspiracy. If convicted on all counts, Gabayzadeh faces a possible 45 years in prison, fines and restitution payments, authorities said. Amzad faces a maximum of 35 years in prison and similar fines, while American Paper and Super American Tissue face 5 years probation, fines and restitution payments.