The chairman and CEO of Oklahoma City-based Quest Resource Corp. and two related entities has resigned and the CFO is on a paid administrative leave following the discovery of about $10 million of “questionable transfers” of corporate funds.

The boards of directors for Quest Resource Corp., Quest Energy Partners LP and Quest Midstream Partners LP accepted the resignation of Jerry Cash as chairman and CEO of all three entities.

“The resignation followed the discovery, in connection with an inquiry from the Oklahoma Department of Securities, of questionable transfers of company funds to an entity controlled by Mr. Cash,” said Quest. “Initial indications are that the amount in question appears to involve about $10 million.”

Quest said it had reported the matter and intended to fully cooperate with the Securities and Exchange Commission and other governmental and regulatory organizations.

The news sent the share price for Quest Resource Corp. down more than 26% to $5.12/share by midday Monday. Quest Energy Partners, the company’s master limited partnership, had dropped almost 21% to $11.24/share.

Cash, 46, had been chairman of Quest since November 2002 when Quest acquired STP Cherokee Inc. He was named CEO in September 2004. Cash formed STP Inc. in 1987 and as president directed that company in finding several oil, natural gas and coalbed methane projects, according to Quest. In November 2002 Cash transferred most of STP’s assets to STP Cherokee and sold STP Cherokee to Quest. According to Forbes, Cash’s salary at the end of 2007 was $525,000. With incentives and bonuses, Cash reportedly received $2.387 million in 2007.

Following the discovery of the corporate funds transfer, the members of the three boards met in joint sessions on Friday and over the weekend and formed a joint special committee comprised of representatives from each board “to investigate the matter and consider the effects on the companies’ financial statements.” Andrews Kurth LLP’s Spencer C. Barasch was retained to lead the investigation. CFO David Grose was placed on paid administrative leave during the investigation.

The boards unanimously elected COO David Lawler as president of each entity. Lawler also was appointed as a director of Quest Resource Corp. to fill the vacancy created by Cash’s resignation. Prior to joining Quest, Lawler worked for Shell Exploration & Production, most recently as engineering and operations manager for multiple assets along the U.S. Gulf Coast. He also was previously employed by predecessor companies of ConocoPhillips.

Kroll Zolfo Cooper LLC has been retained to assist in the accounting and finance functions during Grose’s absence. The boards also formed a joint strategic review committee comprised of one representative of each of the boards to assist Lawler in undertaking a detailed review of each entity’s strategy.

Quest Resource Corp. owns the right to develop around 130,000 net acres in the Appalachian Basin, including 122,600 acres prospective for the Marcellus Shale (see Daily GPI, July 15). Quest Resource Corp. also owns 100% of the general partner and a 57% limited partner interest in Quest Energy Partners, and 85% of the general partner and a 36% limited partner interest in Quest Midstream Partners.

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