CENTRAL ISLIP, N.Y. (AP) – In the months leading up to the 2001 collapse of American Tissue Inc., the company’s CEO possessed intimate knowledge of fraudulent schemes undertaken to save the failing operation from bankruptcy, a federal prosecutor charged Thursday.

In his closing argument in U.S. District Court, prosecutor John G. Martin told a Long Island jury that Mehdi Gabayzadeh oversaw “a sinkhole of fraud” in his position atop the company that employed 4,700 workers in 15 states before its demise.

“Mehdi Gabayzadeh was American Tissue,” Martin argued at the end of a nine-week trial. “Sometimes you have to wonder, with all the fraudulent activity going on at that time, how they had any time to make tissue.”

But defense attorney Raymond Perini portrayed Gabayzadeh as a hard-working Iranian immigrant duped by company CFO Edward Stein, who testified for the prosecution after pleading guilty to two federal charges of securities and bank fraud in 2003.

“If Mehdi Gabayzadeh is guilty of anything, it was entrusting his life’s work to the Steins of the world,” Perini said in his summation, insisting his client was unfamiliar with accounting and U.S. business practices.

“You can’t just guess that Mehdi should have been involved,” he continued. “When you’re CEO of an $800 million company, your name is going to appear on some paperwork. But that doesn’t indicate you’re guilty.”

Gabayzadeh, 60, of Great Neck, is accused of swindling banks, financial institutions and investors of nearly $300 million while he was chief executive officer of the company, once the nation’s fourth-largest maker of toilet tissue and other paper products.

The company’s failure caused mills in Berlin and Gorham, N.H., to close in September 2001, with more than 850 workers laid off. Another company has since bought the mills, which reopened in June 2002; it now employs about 600 people.

American Tissue’s mill in Augusta, Maine, has been vacant, although potential investors on occasion have indicated an interest in trying to get it back in operation.

According to Stein’s testimony, Gabayzadeh was the driving force behind allegedly falsifying business records. He reportedly told subordinates, “I’m the boss,” and ordered them to proceed with questionable practices, Stein testified.

Gabayzadeh’s participation in a series of complex deals – including the creation of phony documents indicating the company had sold million-dollar pulp contracts that didn’t exist – ultimately led to American Tissue’s collapse, Stein testified.

Martin hit on that theme during his summation. “It is simply unreasonable to believe, to accept or even consider that the CEO … simply steps back and doesn’t get involved,” he said.

The bogus deals were documented in part, to help American Tissue keep open a revolving line of credit it enjoyed with LaSalle Bank of Chicago, prosecutors said. Without the line of credit, the company was doomed to fail, the 59-year-old Stein said.