Edmond man indicted in fraud

EDMOND, Jun 18, 2009 (The Edmond Sun - McClatchy-Tribune Information Services via COMTEX) -- QRCP | Quote | Chart | News | PowerRating -- The federal government Wednesday charged an Edmond man for conspiring to illegally appropriate millions of dollars from an Oklahoma City company.

The federal Securities and Exchange Commission charged David Grose, 56, of Edmond, and Jerry Cash, of Oklahoma City, with securities fraud and other violations for a scheme in which they allegedly misappropriated to themselves millions of dollars from Oklahoma City-based Quest Resource Corporation while they were executives at the company.

In other developments, a federal grand jury sitting in Oklahoma City Wednesday returned an indictment charging Grose with three counts of wire fraud stemming from an alleged scheme to defraud Quest Energy Partners of $1 million.

The SEC's enforcement action was filed in U.S. District Court in Oklahoma City concurrently with the criminal charges against Grose filed by the U.S. attorney's office.

Grose was expected to appear before a federal judge at 3 p.m. Wednesday for arraignment in Oklahoma City.

If convicted on all three counts in the indictment Grose faces up to 20 years in prison on each count and a fine of up to $2 million.

Additionally, Grose is named as a defendant in a lawsuit filed in February by the Oklahoma Securities Commission. Cash also is named as a defendant in a separate lawsuit filed by the state agency last August.

The federal government alleges Quest's then-chief executive officer and board chairman Cash and then-chief financial officer Grose misappropriated millions from Quest and related companies through a series of financial transfers.

The SEC alleges Cash took progressively greater amounts from Quest over time to support his lavish lifestyle including spending more than $5 million on his Oklahoma City mansion.

Grose is accused of being complicit in Cash's wrongdoing by initiating wire transfers to Cash's company and creating a false cover story to explain the transfers to Quest's employees and auditors.

"Cash and Grose treated Quest like a personal piggy bank and then lied about their wrongdoing to the company's investors and auditor," Rose Romereo, director of the SEC's Fort Worth Regional Office, said in a news release.

According to the SEC's complaint, Grose took advantage of Quest's lax internal controls to siphon more than $1.8 million from the company.

From December 2005 to August 2008, one of Quest's equipment vendors allegedly kicked back about $850,000 to Grose from equipment purchases Quest had made. The SEC also accuses Grose of using $1 million of Quest's money to fund his personal investment in a small Oklahoma start-up company.

During that same time, Cash allegedly embezzled $10 million from Quest by transferring funds between Quest-related entities and companies he owned and controlled.

In its lawsuit, filed in February, the Oklahoma Securities Commission's allegations closely paralleled the federal government's.

Irving Faught, OSC administrator, said the local indictment supports the state agency's allegations against Grose for securities fraud. Faught said the OSC will continue to pursue its case and seek the return of all ill-gotten gains and a civil penalty.

Mack Martin, Grose's attorney, said Grose continues to deny any wrongdoing in the matter and will plead not guilty. Grose looks forward to being exonerated in court, Martin said.

Patrick Ryan, Cash's attorney in the Oklahoma Securities Commission lawsuit, was out of the office and did not immediately return a call seeking comment.

In May, Quest Resources Corporation and Quest Energy Partners settled lawsuits filed against Cash.

In March, Brent Mueller, 52, of Edmond, the former purchasing director for Quest, pleaded guilty for failing to report the illegal taking of $1 million from Quest to authorities.

Mueller is awaiting sentencing, where he faces up to three years in prison, and he must pay restitution to the victims.

Indictment background

The case against Grose arises out of an ongoing investigation.

In the summer of 2008, Grose planned to make a $1 million investment in Oklahoma Hydrogen Gas Technologies, formed that same year to retrofit vehicles to run on hydrogen fuel, court papers show.

Grose allegedly told the company he would fund the investment with his own money. Instead, under the alleged pretext of paying for the purchase of the pipe, Grose wired about $1 million from Quest to a pipe supplier.

Within minutes of the transfer, Grose allegedly contacted the pipe company to cancel the order and told the pipe company to wire the money to the hydrogen fuel technology company instead of returning it 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 canceled the order.

As a result of the scheme, it is alleged that Quest lost $1 million.

These investigations are being led by the Western District of Oklahoma's Financial Fraud Task Force, 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.

marks@edmondsun.com -- 341-2121, ext. 108

To see more of The Edmond Sun or to subscribe to the newspaper, go to
http://www.edmondsun.com/. Copyright (c) 2009, The Edmond Sun, Okla. Distributed
by McClatchy-Tribune Information Services. For reprints, email
tmsreprints@permissionsgroup.com, call 800-374-7985 or 847-635-6550, send a fax
to 847-635-6968, or write to The Permissions Group Inc., 1247 Milwaukee Ave.,
Suite 303, Glenview, IL 60025, USA.

More News:   Market Updates | Stock Alerts | All Trading News | Stock Index