Former Quest CEO to Serve Nine Years in Prison and Pay an Additional $5 Million from Sarbanes-Oxley Violation
CEO Failed to Disclose His Unlawful Diversion of $10 Million in Company Funds
|U.S. Department of Justice November 12, 2010|
OKLAHOMA CITY—Today, JERRY DALE CASH, 48, of Oklahoma City, was sentenced by United States District Judge Stephen P. Friot to serve 108 months in federal prison for making a false Sarbanes-Oxley certification to the Securities & Exchange Commission (SEC) by failing to disclose his diversion of millions in corporate funds, announced Sanford C. Coats, United States Attorney for the Western District of Oklahoma. In addition, Judge Friot ordered Cash to serve three years of supervised release upon his release from prison and pay an additional $5 million in restitution towards the $12 million stipulated restitution amount. The parties agreed that Cash had already paid $7 million prior to sentencing today.
“Corporate officers owe a great fiduciary responsibility to their investors and to their employees,” said Coats. “Here, that fiduciary duty was legally owed to, relied upon, and expected by Quest investors and employees. Instead, Mr. Cash violated this trust when he used company funds as his personal bank account to support a lavish lifestyle. The significant sentence imposed today should serve as a clear warning to corporate officers that a breach of their fiduciary duty will result in more than a slap on the hand. I commend the diligent efforts of the Financial Fraud Task Force, the SEC, and the Oklahoma Department of Securities who have worked cooperatively together in exposing this illegal conduct, bringing those responsible to justice, and protecting company investors and employees.”
From 2004 through 2008, Cash was the Chief Executive Officer of Quest Energy Partners, L.P., a publicly traded oil and gas exploration and production business based in Oklahoma City. As CEO, federal law required Cash to certify the accuracy of Quest’s quarterly and annual financial reports with the SEC. On August 11, 2008, Cash certified Quest’s financial report filed with the SEC. However, Cash knew the report was false as it failed to disclose his diversion of $10 million.
Cash pled guilty on February 5, 2010, and admitted that prior to August of 2008, he worked with former Quest CFO David Grose to transfer $10 million out of Quest to an account owned by Cash in the name of Rockport Energy. Cash admitted that he and Grose made these transfers without the knowledge or approval of the Board of Directors. Cash admitted that he then spent the money on non-Quest investments, renovations to his Nichols Hills home, and other personal items. Cash admitted that no member of the Quest Board of Directors or any member of senior management, other than Grose who helped him make the transfers, knew Cash was spending the $10 million on non-Quest investments or personal items. Despite his knowing diversion of the $10 million from Quest, on August 11, 2008, Cash falsely certified Quest’s financial report filed with the SEC because the diversion was not disclosed.
The company has cooperated with authorities in the investigation.
Other Cases Arising Out of This Investigation
- United States v. David Grose (Case No. CR-09-0191-F). On February 24, 2010, a jury found Grose, 58, of Edmond, Oklahoma, Quest’s former Chief Financial Officer, guilty of three counts of wire fraud stemming from a scheme to defraud Quest out of $1 million. Evidence showed that in the summer of 2008, Grose told a hydrogen fuel technology company he wanted to make $1 million personal investment funded with his own money. Instead, under the pretext of paying for the purchase of pipe, Grose wired approximately $1 million from Quest to a pipe supplier. Within minutes of the transfer, Grose contacted the pipe company to cancel the order and instructed the pipe company to wire the money to the hydrogen fuel technology company instead of returning the money to Quest. Grose then caused the transaction to be documented on Quest’s financial records as payment for pipe but did not inform the accounting department he had cancelled the order. As a result of this scheme, Quest lost $1 million. A sentencing hearing for Grose has been set for November 29, 2010.
- United States v. Brent Mueller (Case No. CR-09-068F). On May 14, 2019, Mueller, 53, of Edmond, Oklahoma, Quest’s former purchasing director, was sentenced to serve two years in federal prison and ordered to pay over $1 million in restitution. Mueller pled guilty on March 25, 2009, to misprision of a felony and admitted that in the summer of 2008, he learned that Grose had illegally wired $1 million out of Quest to use for a personal investment and that he took several steps to cover up the crime, including trying to recover the $1 million to prevent Quest from discovering the illegal diversion.
- The SEC has filed a related civil complaint in the United States District Court for the Western District of Oklahoma styled SEC v. Jerry D. Cash and David E. Grose, (Case No. 09-CV-639). A copy of the SEC’s press release and civil complaint can be found at http://www.sec.gov/litigation/litreleases/2009/lr21087.htm. That action is pending.
- The Oklahoma Department of Securities also has filed a related civil action, which can be found at www.securities.ok.gov.
The investigation was conducted by the Western District of Oklahoma’s Financial Fraud Task Force, which is comprised of special agents from Federal Bureau of Investigation, the Internal Revenue Service Criminal Investigative Division, and personnel from the U.S. Attorney’s Office. Coats thanked the Securities and Exchange Commission and the Oklahoma Department of Securities for their continuing coordination and assistance in the government’s investigation. This case was prosecuted by Coats and Assistant U.S. Attorney Jeb Boatman.