Former Quest Chief Financial Officer Found Guilty of Defrauding Company Out of $1 Million

OKLAHOMA CITY, OK—Today, a federal jury in Oklahoma City has found DAVID GROSE, 56, of Edmond, Oklahoma, guilty of three counts of wire fraud stemming from a scheme to defraud Quest Energy Partners, L.P., out of $1 million, announced Sanford C. Coats, United States Attorney for the Western District of Oklahoma.

“Corporate officers owe special fiduciary duties to their companies, to their investors, and to their employees,” stated U.S. Attorney Sanford C. Coats. “In this case, that fiduciary trust was violated by Mr. Grose solely for the sake of personal profit.”

From 2004 to 2008, Grose served as the Chief Financial Officer for Quest Energy Partners, L.P. (“Quest”), a publicly-traded oil and gas exploration and production business based in Oklahoma City. Grose’s responsibilities included supervising Quest’s financial accounting and books, coordinating quarterly reviews and annual audits by outside auditors, certifying the accuracy of reports filed with the U.S. Securities & Exchange Commission (“SEC”), and ensuring that all employees complied with Quest’s internal ethics policies.

According to the evidence at trial, in the summer of 2008, Grose planned to make a $1 million personal investment in a hydrogen fuel technology company. He told the hydrogen fuel technology company that the investment would be 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. Evidence showed that 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. The company cooperated with law enforcement in the investigation.

The trial lasted two days and the jury deliberated approximately one hour before finding Grose guilty on all counts of wire fraud.

At sentencing Grose faces up to 20 years in federal prison on each count and a fine of not more than the greater of twice the gross gain in this case, e.g., $2 million. A sentencing hearing will be set by the Court in approximately 90 days.

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. U.S. Attorney 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 Assistant U.S. Attorney Jeb Boatman and U.S. Attorney Sanford C. Coats.

Other Cases Arising Out of Investigation

1. On March 25, 2009, Brent Mueller, the former purchasing director for Quest, pled guilty to misprision of a felony (Case No. CR-09-068F). As part of his plea, Mueller 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. Mueller is awaiting sentencing where he faces up to three years in federal prison, a $250,000 fine, and mandatory restitution.

2. On February 5, 2010, Jerry Dale Cash, 47, of Oklahoma City, Oklahoma, the former Chief Executive Officer for Quest, pled guilty to making a false Sarbanes-Oxley certification to the SEC by failing to disclose his diversion of $10 million in corporate funds (Case No. CR-09-241F). As part of his plea, Cash admitted that prior to August of 2008, he worked with a fellow officer to transfer $10 million out of Quest to an account owned by Cash in the name of Rockport Energy. Cash admitted that he and the fellow officer 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 and renovations to his Nichols Hills home, among other personal items. Cash admitted that no member of the Quest Board of Directors or any member of senior management, other than the fellow officer who helped him make the transfers, knew Cash was spending the $10 million on non-Quest investments or other personal items. Despite his diversion of the $10 million from Quest, on August 11, 2008, Cash certified Quest’s financial report filed with the SEC knowing that it was false because the diversion was not disclosed. Cash left Quest in August of 2008. Cash is awaiting sentencing where he faces up to 20 years in federal prison, a $5 million fine, and mandatory restitution.

3. 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.

4. The Oklahoma Department of Securities also has filed a related civil action, which can be found at www.securities.ok.gov.