He was arrested, tried, convicted and imprisoned on corruption charges in what the New York Times claimed "was widely seen among moderates as a politically motivated attack" by the government's conservatives and hard-liners to thwart President Mohammad Khatami's reformist agenda.

Karbaschi also angered bazaar merchants by raising taxes and contributing to the city's soaring real estate prices, earning him the reputation during his time as mayor of "the most loved and hated man in Tehran.

[6] The prosecution of Karbaschi was called "the most prominent part of a campaign" by Iranian clerical conservatives "to thwart the reformist administration" of President Mohammad Khatami, rather than an honest attempt to "uncover and punish" financial corruption.

The trial was often "a heated debate — at times a shouting match" — between judge Gholam Hossein Mohseni-Ejehei and Karbaschi, who holds the same clerical rank as Ejei.

[4] In July 1998 Karbaschi was convicted of corruption and misuse of funds and began serving a two-year sentence in May 1999, "despite last-ditch efforts by his supporters"[3] including a petition "signed by more than 130 members of parliament — nearly half the chamber" — asking supreme leader Ali Khamenei for a pardon.