A federal grand jury has charged the former chief financial officer of Oklahoma City-based Quest Energy Partners with fraud, accusing him of taking $1 million in company money for a personal investment.
The U.S. Securities and Exchange Commission also has filed a civil suit against the former executive, David Grose, and Quest’s former CEO Jerry Cash, charging both men with securities violations related to an alleged scheme to misappropriate millions of dollars of corporate cash to themselves.
Quest Energy Partners and its affiliate, Quest Resource Corp., have been forced to restate financial reports due to $10 million in unauthorized transfers of company money by Cash to entities he controlled, according to the companies’ regulatory filings.
Cash resigned in August, and Grose was fired in December. Quest sued Cash, who settled the case with a $2.4 million payment, in addition to other considerations.
Nasdaq has notified both companies that their stocks may be removed from the exchange for failing to file financial reports on time. On Wednesday, the companies asked Nasdaq for an extension to July 31.
Quest spokesman Jack Collins said the company hopes to complete its restated financial reports by that time.
The Oklahoma City grand jury claims Grose wired $1 million in Quest Energy funds to a pipe supplier last summer, but minutes later contacted the vendor to cancel the order. Gross, the indictment alleges, told the pipe company to wire the money to a hydrogen fuel technology company. The payment to the hydrogen fuel company was a personal investment, but Grose booked the transaction as a payment for pipe, and Quest took a $1 million loss, the indictment said.
Grose entered a not guilty plea at his arraignment Wednesday. His attorney, Mack Martin, said Grose is looking forward to a trial, where he expects to be exonerated.
"David absolutely denies any wrongdoing whatsoever,” Martin said.
"Officers of publicly-traded companies owe special fiduciary duties to their companies, to investors, and to employees,” U.S. Attorney John C. Richter said. "The vast majority uphold that duty. For those who do not, however, charges like these show that the government has the tools to hold executives accountable for corporate crimes and we won’t hesitate to use them where the evidence warrants it.”
The SEC claims Cash, with the help of Grose, transferred Quest funds to a business he controlled, and concealed the transfers by moving cash back into Quest accounts at the end of each quarter.
The SEC alleges that Cash took progressively greater amounts from Quest over time that he used to support his lavish lifestyle, including spending more than $5 million on his Nichols Hills mansion. Grose was complicit in Cash’s wrongdoing by, among other things, initiating wire transfers to Cash’s company and creating a false cover story to explain the transfers to Quest’s employees and auditors, regulators claim.
If convicted, Grose faces up to 20 years in federal prison on each of the three wire fraud counts and a fine of up to $2 million.
The SEC is seeking financial penalties, repayment of the proceeds taken from the company by Grose and Cash, and to permanently prohibit the men from serving as officers or directors of any public companies.
from the oklahoman
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