COLUMBUS, Ohio — Attorney General Dave Yost filed a lawsuit Wednesday against two State Teachers Retirement System of Ohio (STRS) board members, saying they must be removed from their roles for breaching their fiduciary duties. He accused them of being a part of an attempt "to hijack" the pensioners' retirement accounts. Defendants Wade Steen and Dr. Rudy Fichtenbaum have denied the allegations in the AG's filing in the Franklin County Court of Common Pleas.
Steen and Fichtenbaum "seek to steer" as much as 70% of current STRS assets, which is $65 billion, to a "shell company" that has "backdoor ties" to the members, Yost argued.
He filed just a few hours before the STRS board meeting, one that resulted in chaos due to already high tensions and the attorney general's latest involvement.
This is a "sham investigation," Steen said, to applause from people in the gallery.
The majority of the board members seemed to agree, voting 6-5 to remove the current chair and replace him with Fichtenbaum.
Recap
The STRS board is made up of 11 members. There are five elected contributing teachers and two elected retired teachers. The governor gets to appoint one investment expert. The speaker of the House and the Senate president get to jointly appoint an expert. The treasurer and director of the Department of Education and Workforce both get to designate an expert.
STRS lost $5.3 billion in 2022 alone. In 2023, it lost $27 million invested in the failed Silicon Valley Bank. In addition to those — the cost of living adjustments, or COLAs, were suspended for more than 150,000 retired Ohio teachers for five years starting in 2017. In 2012, the qualifying retirement number was moved from 30 years to 35 years. Last year, this was changed to 34.
Then, the board approved $10 million in bonuses for their staff.
This has led to a group of pensioners, who have named themselves the "reformers," to fight for change against the 'status quo' members.
Last week, Yost launched an investigation into the teachers' pension fund after allegations that a "hostile takeover" is putting educator money in jeopardy.
RELATED: Ohio AG investigating alleged 'hostile takeover' inside teachers' pension fund
The concerns came from anonymously sent documents sent to Gov. Mike DeWine's office. The governor's spokesperson, Dan Tierney, told me that he believes they were prepared by multiple STRS staff members. Through public records requests, I obtained dozens of papers.
STRS' consulting firm Aon cut ties with them, prompting a response from the governor.
"This is a huge red flag, calling into question how STRS is operating and providing oversight. The unstated implication is that the governance issues at STRS are so concerning that Aon could not continue its contract in good faith. STRS may now be out of compliance with portions of audit recommendations due to Aon ending the contract."
The documents allege that Steen and Fichtenbaum, in addition to two former STRS board members, have been doing the bidding of private investment group QED Systematic Solutions.
In brief, QED is a firm that has no clients and no track record. It was started by former Deputy Treasurer Seth Metcalf and Jonathan (JD) Tremmel. Metcalf worked under Josh Mandel in multiple capacities, including as general counsel.
In 2020, they couldn’t impress the board members, mainly because of their lack of experience and also the fact that QED was not registered as a broker-dealer or investment adviser. The men also didn't own the technology to "facilitate the strategy," the documents say.
Click here to learn more about QED.
The document accuses the members of directly collaborating with QED and using their documents for QED pitching. Other members raised concerns privately.
"The owner of this shell company continues to peddle to STRS a secretive and untested investment scheme while his own condominium is in foreclosure," the lawsuit says.
QED teamed up with the Ohio Retirement for Teachers Association (ORTA) to help elect candidates who wanted to reform STRS.
They accuse STRS of being corrupt, not an uncommon assertion made against the pension fund. Reformers state there needs to be a change because the current board keeps hurting the pensioners.
Lawsuit
Wednesday morning, Yost filed a lawsuit to remove Steen and Rudy Fichtenbaum, saying they have failed their role in protecting the pension fund.
The AG states that the pair should be removed because they broke their fiduciary duties of care, loyalty and trust when "colluding" with QED.
"While this scheme may benefit Steen and Fichtenbaum, it may spell disaster for Ohio teachers who have retired or hope to retire someday," the lawsuit states.
Although not explicitly spelled out in the lawsuit, here is how the QED "scheme" may have or could benefit the men:
Steen was already a board member when QED started contacting STRS; however, Fichtenbaum was not.
Fichtenbaum "wrote a blog post criticizing STRS during his campaign," in which he supported Steen and QED's solution to the investment debacle, the lawsuit said.
Although not expressed by Yost, the anonymous documents tied Fichtenbaum with QED for campaign purposes.
Once the firm couldn't get through the door with current STRS members, it allegedly changed strategies. The documents state that it would “replace board members and staff with those who would support their proposal.”
"QED pitched (and apparently sold) their proposal to Fichtenbaum while he was a board candidate," the document said.
It is unclear if QED or ORTA contributed to Fichtenbaum's campaign since the only reported disclosures that I can access at the moment are from the Ohio Federation of Teachers. The union spent about $2,300 on ads.
The lawsuit draws a closer tie between Steen and QED-adjacent entities.
"The Ohio Retirement for Teachers Association (“ORTA”) established what it calls a Pension Defense Fund to pay Defendant Steen’s legal fees," it says.
The lawsuit also states that Steen and Metcalf go to the same church and that Tremmel is an acquaintance.
Response
"It's defamatory," Steen said, talking to reporters during a break during the board meeting. "It's not true."
In an act of defiance, the reformers removed STRS chair Dale Price, who was on the status quo side, and replaced him with Fichtenbaum.
"I think that says that the majority of the members of the board believe that I have carried out my fiduciary responsibilities and they have confidence that I will continue to do that," Fichtenbaum told me during a break in the meeting.
Retired Columbus-area teacher Sharon Parker applauded this decision, both in the gallery and when talking to me.
"I think we need some change," Parker said. "They need to work together for the teachers and they're not doing that."
Parker and Cleveland-area educator Terry Caskey believe that this was the governor's way of silencing reform, which they believe would have provided more transparency — and also a way to prevent administrative kickbacks. There is no evidence that we have found of any administrative kickbacks.
Click or tap here to learn more about concerns about another major corruption scandal brewing.
Case Western Reserve University business law professor Eric Chaffee said these allegations are serious.
"I doubt this case would have been brought if there had not been things that ought to be explored about the relationships of these board members with QED," Chaffee said.
What's next
Price's term expires this summer, so there was an election to find his successor. Over the weekend, Michelle Flanigan — a reformer — won in a landslide victory.
This means that the reformers have a supermajority, meaning they could hire QED if they wanted to.
When talking with Steen, I asked him if QED was still a good idea — considering it has been involved in this controversy and has a lack of legitimacy.
"Now, I'm not even advising QED or anyone — what I'm advising is we need to look at index funding," Steen responded. "We really need to take a look at that that would dramatically reduce our costs."
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