SEC Charges Former Quest Executives With Fraudulently Concealing Millions of Dollars of Self-Dealing
FOR IMMEDIATE RELEASE
Washington, D.C., June 17, 2009 — The Securities and Exchange Commission today charged two Oklahoma City residents with securities fraud and other violations for a scheme in which they misappropriated to themselves millions of dollars from Quest Resource Corporation, Quest Energy Partners, L.P. and their affiliates while they were executives at the company.
The SEC alleges that Quest's then-chief executive officer and board chairman Jerry D. Cash and then-chief financial officer David E. Grose caused Quest to make a series of transfers to a separate company that Cash controlled. Cash tried to conceal the transfers by, among other things, ostensibly transferring the funds back to Quest at the end of each quarter. The SEC alleges, however, 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 Oklahoma City 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.
The SEC's enforcement action was filed in U.S. District Court in Oklahoma City concurrently with criminal charges against Grose filed by the U.S. Attorney's Office for the Western District of Oklahoma.
"Cash and Grose treated Quest like a personal piggy bank and then lied about their wrongdoing to the company's investors and auditor," said Rose Romero, Director of the SEC's Fort Worth Regional Office.
The SEC alleges that the scheme, which began in June 2004, collapsed in August 2008 after other Quest executives discovered and began questioning the legitimacy of the transfers. By that time, Cash had misappropriated a total of $10 million from Quest. Cash subsequently resigned from Quest and Grose was terminated.
According to the SEC's complaint, Grose took advantage of Quest's lax internal controls to siphon more than $1.8 million from the company. From December 2005 through August 2008, one of Quest's equipment vendors kicked back approximately $850,000 to Grose from equipment purchases that Quest had made. The SEC also contends that Grose used $1 million of Quest's money to fund his personal investment in a small Oklahoma start-up company.
The SEC's complaint states that none of these transactions were disclosed in the multiple quarterly and annual filings Quest made with the SEC during the periods in question, even though Cash and Grose each certified in these filings that they had disclosed any fraud involving management. Cash and Grose also signed numerous Quest filings in which such related party transactions were required to be disclosed, but were not. Lastly, the SEC claims that Cash and Grose signed multiple representation letters to Quest's auditor attesting that all related party transactions had been disclosed and that there had been no fraud involving management.
The SEC's complaint charges, among other things, that Cash and Grose violated the anti-fraud provisions of the Securities Act of 1933 and the anti-fraud, internal controls, proxy statement, record-keeping and reporting provisions of the Securities Exchange Act of 1934. The SEC seeks financial penalties, disgorgement of ill-gotten proceeds with prejudgment interest, and permanent bars from serving as officers or directors of public companies.
The SEC appreciates the assistance of the U.S. Attorney's Office for the Western District of Oklahoma, the Federal Bureau of Investigation and the Oklahoma Department of Securities. The SEC's investigation continues.
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For more information, contact:
Regional Director - SEC's Fort Worth Regional Office
Associate Director, Enforcement - SEC's Fort Worth Regional Office
Assistant Director, Enforcement - SEC's Fort Worth Regional Office