06/18/2009

News / Former Quest Senior Executive Charged with Fraud Former Chief Financial Officer Accused of Diverting $1 Million of Company Money for a Personal Investment

OKLAHOMA CITY, OK—Today, a federal grand jury in Oklahoma City returned an indictment charging DAVID GROSE, 56, of Edmond, Oklahoma, with three counts of wire fraud stemming from an alleged scheme to defraud Quest Energy Partners, L.P., of $1 million, announced John C. Richter, United States Attorney for the Western District of Oklahoma.

Grose formerly 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. According to the indictment, 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.

The indictment alleges that in the summer of 2008, Grose planned to make a $1 million personal investment in a hydrogen fuel technology company. He allegedly told the hydrogen fuel technology company that the investment would be funded with his own money. Instead, under the alleged 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 allegedly 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. It is alleged 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, it is alleged that Quest lost $1 million.

"Officers of publicly-traded companies owe special fiduciary duties to their companies, to investors, and to employees," stated U.S. Attorney John C. Richter. "The vast majority uphold that duty. For those who do not, however, charges like these show that the government has the tools to hold executives accountable for corporate crimes and we won't hesitate to use them where the evidence warrants it."

The indictment alleges three counts of wire fraud and seeks criminal forfeiture, including forfeiture constituting or derived from the proceeds traceable to the alleged offenses or substitute assets. Reference is made to the indictment for further information. The public is reminded that the indictment against Grose is merely an accusation and that he is presumed innocent unless and until proven guilty.

If convicted, 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.

Gross is expected to appear before a United States Magistrate at 3:00 this afternoon for arraignment in Oklahoma City.

The case against Grose arises out of an active, on-going investigation into allegations of wrong-doing by former officers at Quest. On March 25, 2009, Brent Mueller, the former purchasing director for Quest, pled guilty to misprision of a felony (Case No. CR-09-068D). 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 and must pay full restitution.

These investigations are being led 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 Richter thanked the Securities and Exchange Commission and the Oklahoma Department of Securities for their continuing coordination and assistance in the government's investigation. The case is being prosecuted by United States Attorney Richter and Assistant U.S. Attorneys Jeb Boatman and Sanford C. Coats.

It should be noted that the SEC has today announced the filing of a related civil complaint. A copy of the SEC's press release and civil complaint can be found at http://www.sec.gov/litigation/litreleases.shtml . The Oklahoma Department of Securities also has filed a related civil action, which can be found at www.securities.ok.gov .

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