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Former Quest Resource CEO, CFO Sued for Embezzlement

The former CEO and former CFO of Quest Resource Corp. last week were sued by the Securities and Exchange Commission (SEC) for allegedly siphoning millions of dollars from the Oklahoma City-based producer. Separately a federal grand jury in Oklahoma City issued a criminal indictment against the CFO.

The SEC on Wednesday charged ex-CEO Jerry Cash, 47, with embezzling $10 million for a period of time until last year, when other Quest executives questioned some money transfers. The SEC said former CFO David Grose, 56, helped to create a cover story for Cash's transactions while he misappropriated more than $1 million and collected a $850,000 kickback from a supplier.

The lawsuit was filed in U.S. District Court for the Western District of Oklahoma (SEC v. Jerry D. Cash and David E. Gross, No. 09-CF-639).

"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, who directs the SEC's office in Fort Worth, TX. The SEC wants the men to forfeit "illicit profits" and pay unspecified fines.

The grand jury indictment alleges Grose defrauded Quest of $1 million by manipulating an equipment order, according to the U.S. Attorney's office in Oklahoma City. At an arraignment last week, Grose pleaded not guilty.

Quest's former purchasing director Brent Mueller in March pleaded guilty to failing to report Grose's actions and for trying to cover them up. Mueller, who is awaiting sentencing, faces up to three years in prison.

Cash resigned in August (see NGI, Sept. 1, 2008). He had served as chairman of Quest beginning in November 2002 when Quest acquired STP Cherokee Inc. and was named CEO in September 2004. Grose was first put on a paid administrative leave last August, but he was later fired by the company.

Last month Quest entities said they had recovered $2.4 million in cash, some stock in a separate corporation and interest in two natural gas assets as settlement following an internal investigation (see NGI, June 1).

Meanwhile, Quest and its entities are attempting to regain a listing on NASDAQ after its late filing last Tuesday of the required 2008 annual report Form 10-K. In addition to the 2008 annual report, Quest said it filed reaudited and restated annual financial statements for 2005, 2006 and 2007, and reaudited and restated financial statements for the period from Jan. 1, 2007 to Nov. 14, 2007.

Quest said it also "continues to work diligently" to complete and file its 3Q2008 Form 10-Q and 1Q2009 Form 10-Q.

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