American Tissue Inc., which sought Chapter 11 bankruptcy protection last September, filed suit against its former officers and related companies, claiming they milked the company for millions of dollars and doctored books to make the company appear solvent so they could raid it longer.
In the suit, filed in U.S. Bankruptcy Court in Delaware last week, American Tissue and four subsidiaries are going after Mehdi Gabayzadeh and Nourollah Elghanayan, the company's founders, majority owners and former controlling officers, who were forced out after the bankruptcy filing.
The company accuses them of gross misconduct and fiscal chicanery in moving millions of dollars from the financially ailing company into their American Paper Corp., also of Hauppauge, and a dizzying array of other related shell companies and subsidiaries. Those companies now compete against American Paper, according to the court filing.
American Tissue is asking for at least $100 million in damages for what it calls the pair's breaches of fiduciary duty to the company and shareholders, and wants them to repay millions in loans and alleged misappropriated assets.
At the same time, the company wants the court to name Gabayzadeh and Elghanayan "alter egos" of American Tissue, which would make them liable for its debt.
Attorneys from both sides of the suit either did not return calls or declined to comment on the case Wednesday.
Gabayzadeh and Elghanayan are both targets of federal probes by the U.S. attorney, the FBI and the Securities and Exchange Commission, Newsday has reported.
The American Tissue suit also alleges that several of its recent quarterly financial reports, filed with the SEC, contained serious mistakes or misstatements that the two owners either knew of or should have know about.
"Since 1996 or earlier, defendants Gabayzadeh and Elghanayan allowed the debtors' (American Tissue and related companies) financial records to exist in utter disarray, thereby obfuscating the nature and extent of such improprieties and making it extremely difficult to reconstruct them," the suit claims.
When American Tissue filed for creditor protection in bankruptcy court, it idled three Capital Region plants. Two sites -- in Waterford and Mechanicville -- have been purchased by Cascades Tissue Group Inc. of Quebec and are in the process of reopening.
The third, in Greenwich, was approved for sale this week to a California corporation, St. Regis Investment Group LLC. (New York) Times Union.