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euddoggwyn

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euddoggwyn

Re: None

Sunday, 06/10/2007 2:17:56 AM

Sunday, June 10, 2007 2:17:56 AM

Post# of 5803
Embezzlement/Check-Kiting.


RUNYON an embezzler:

http://sec.edgar-online.com/2007/04/17/0001019056-07-000364/Section3.asp

In December, 2004, Quest terminated its former Chief Financial Officer, Fred Runyon. Quest Energy, Ltd., an indirect, wholly-owned subsidiary of Quest, also terminated Mr. Runyon as President of Quest Energy. On April 7, 2005, Quest announced that, upon completion of the initial phase of an audit by counsel retained by Quest for that purpose, among others, Quest began an investigation into an apparent embezzlement from Quest and a conspiracy to commit embezzlement by some former employees of Quest, Quest's indirect wholly-owned subsidiary, Quest Energy, Ltd., and its former indirect wholly-owned subsidiary, D&D Contracting, Inc, including Mr. Runyon. Most of the embezzled funds result from Runyon apparently engaging in a "check-kiting" scheme with the complicity of his sister, Judy Holbrook, the manager of Community Trust Bank, where Quest Energy maintained bank accounts.

At of the date of this report, Quest has not quantified the scope of the apparent embezzlement or the impact that the apparent embezzlement will have on its financial statements. Quest has retained a forensic accountant to quantify the scope of the alleged fraud; however, the forensic accountant has not completed its analysis at this time.

In May, 2006, a federal grand jury indicted Mr. Runyon, Ms. Holbrook, James Daniel Stollings, and Quest's former President and Chief Executive Officer, William R. Wheeler on charges of bank fraud. In connection with the indictments, Mr. Runyon and Ms. Holbrook each pled guilty. In December 2006, a federal jury convicted Mr. Stollings and Mr. Wheeler of bank fraud. Mr. Wheeler has appealed the conviction. Quest denies any wrongdoing in connection with these matters.

The Federal Insurance Company, the insurer for Community Trust Bank, has notified Quest Energy that is seeking to obtain subrogation of monies it has paid to Community Trust Bank and repayment of deductibles by the bank as a part of an alleged criminal scheme and conspiracy by former employees of the bank and other individuals. The Federal Insurance Company has alleged that former employees or associates of Quest Energy, including Mr. Runyon, were primarily involved in the alleged scheme, that Quest Energy is accordingly responsible for the actions of these former employees and associates, and that Quest Energy obtained a substantial material benefit as a result of this alleged scheme. Quest Energy denies that it had any involvement with or responsibility for any of the actions alleged by the Federal Insurance Company, and it further denies that it has benefited from any such alleged scheme. Further, Quest Energy contends that the negligent actions and inactions by Community Trust Bank caused severe damage and loss to Quest Energy. The Federal Insurance Company has commenced an action against Quest Energy and others in Pike County Court, Kentucky with respect to these allegations. Quest Energy believes that it has several meritorious defenses and counterclaims to this action and intends to defend it vigorously.

In light of these occurrences, Quest has determined that the design and operation of its disclosure controls and procedures, as defined in Exchange Act Rule 13a-14(c) have not been effective to ensure that information required to be disclosed in its Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to them to allow timely decisions regarding required disclosure. Quest is currently reviewing and revising its controls and procedures to increase the effectiveness of its disclosure controls and procedures.

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