Ohio Attorney General Dave Yost. (Photo by Morgan Trau, WEWS.)
With billions of educators’ retirement dollars on the line, Ohio Attorney General Dave Yost is defending and explaining his lawsuit against individuals accused of attempting to usurp the teachers’ pension fund.
Last week, Yost filed a slew of subpoenas against individuals he has accused of bribery as a major scandal brews inside the retired teachers’ pension fund. The investment firm at the center of the controversy spoke out against him.
The State Teachers Retirement System (STRS) is in chaos. In summary, there has been constant fighting, two board resignations and allegations of both a public corruption scheme and mishandling of funds.
In May, Yost filed a lawsuit to remove two members of STRS, stating they are participating in a contract steering “scheme” that could directly benefit them. Yost started the investigation after documents prepared by STRS employees alleged that Wade Steen and Chair Rudy Fichtenbaum have been doing the bidding of investment firm QED.
QED was started by former Deputy Treasurer Seth Metcalf and consultant Jonathan (JD) Tremmel. In 2020, they set their eyes on STRS, according to the main 14-page memo.
The documents claim that they — despite having no clients and no track record — tried to convince STRS members to partner with them.
They couldn’t impress the board members, mainly because of their lack of experience and also because 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.
Steen and Fichtenbaum had allegedly been bidding continuously, pitching QED’s direct documents to board members and proclaiming the company’s talking points to other staff.
The pair should be removed because they broke their fiduciary duties of care, loyalty and trust when “colluding” with QED, according to Yost’s case.
This fight began from a debate on how STRS should invest money — through the current system of actively managed funds versus an index fund. Active funds try to outperform the stock market, have more advisors and typically cost more. Index funds perform with the stock market, are seen as more passive, and typically cost less.
In short, “reformers” want to switch to index funding, while “status quo” individuals want to keep actively managing the funds. Recent elections have allowed the “reform-minded” members to have a majority of the board.
Reformers want a cost-of-living adjustment, or COLA. The COLAs were suspended for more than 150,000 retired Ohio teachers for five years starting in 2017. They were reinstated, but there has been a suspension of increases, significant for retirees who need this money and are dealing with inflation.
The faction also believes that this is a “sham” investigation meant to prevent democratically elected individuals from choosing what they want to do with their pension money.
Steen and Fichtenbaum have repeatedly brought up how quick the turnaround time was between Yost receiving the memo and filing the civil suit. It is unclear the total timeline, but the documents were received by government officials in early May. Yost said he was investigating on May 9, and by May 14, a lawsuit had been filed in Franklin County Court of Common Pleas.
In late Aug., Yost filed a slew of subpoenas against QED and others allegedly involved in this scheme. QED spoke out to us for the first time last Friday.
Digging in
Yost, at the entrance to his office building where we caught him, stopped to answer some questions.
“Anytime there’s an allegation that a public contract is being steered in a particular direction, that’s concerning,” Yost told me. “It’s not only illegal, but it points to a larger corruption.”
The problem isn’t reform to the board, it’s the massive amount of money — nearly $70 billion — being possibly delved out to people with a lack of experience, he said.
“It’s about protecting the assets and the investments that are represented by all these teachers’ retirement accounts,” he added. “They’ve worked for decades to have their retirement.”
Yost has filed eight subpoenas for his case, with the focus being on QED.
“QED has always followed the letter and spirit of the law and will fully comply with the subpoena,” Metcalf told me.
Both Metcalf and the accused board members believe this case is a “sham.”
“This fight is really about whether the teachers can take back control of their money from STRS staff and is not about QED’s index-based proposal for a de minimis amount of money,” Metcalf added.
Some reformers are taking Metcalf’s side. Retired teacher Robin Rayfield claims that Yost doesn’t truly care about protecting teachers.
“The attorney general and governor are bullies,” Rayfield said. “They’re trying to take away the democratically-elected majority.”
Rayfield leads the Ohio Retirement for Teachers Association (ORTA), the faction of reformers who have helped to elect board members who want to change the investment structure.
He believes Yost is only getting involved for political gain since he filed the lawsuit before speaking to QED.
“In a world where Yost responds to DeWine and DeWine is trying to protect the pipeline of money from Wall Street back to Ohio’s politic, it makes sense,” the former educator said.
Yost denied this.
“I don’t have a favorite outcome here,” the AG said. “I just want to make sure that we’ve got a transparent clean process that gets the best possible result for the retirees.”
DeWine agrees, with spokesperson Dan Tierney telling us for months that the governor “doesn’t care who these money managers are as long as they follow the law.”
“The governor doesn’t have a preference on what investments they make because, again, as long as they follow the law and they’re protecting the money and the fund and not making extraordinarily risky investments that are endangering these pension funds,” Tierney said in May.
Reformers believe the timing is suspicious.
“After a positive working relationship with the Attorney General during my seven years in state government, I was surprised and disappointed that the Attorney General’s office did not contact QED in the three days between when the Attorney General announced his investigation and when he filed the civil lawsuit,” Metcalf said. “It’s disturbing that the Attorney General’s policies and procedures would allow a taxpayer-funded civil lawsuit based on anonymous, self-serving allegations without any attempt to understand the truth.”
So why didn’t Yost reach out to QED?
“The lawsuit, it gives us certain tools to be able to collect information that we don’t have just by asking questions,” the AG responded. “The lawsuit is actually, in this case, not an indication of wrongdoing, but the identification of a concern and a mechanism to put some teeth in the investigation.”
Many attorneys want to make the legal request for documentation before revealing their hand, Case Western Reserve University business law professor Eric Chaffee said. That way, all documentation is maintained.
Due to the severity of the claims and the information he has already, the lawsuit was essential, Yost said.
“We’re doing what we need to do to enforce the legal obligation of the board to the teachers, the fiduciary obligation — this is what the law says I’m supposed to do,” he added. “I can go to court and seek to remove somebody that I think may not be living up to their fiduciary duty.”
xfYost continued to emphasize that this is just the first few steps in the process.
“We are working the investigation, we’re gonna get the facts,” he said. “Everybody should withhold judgment until we know what the truth is — but when the truth is out, then we will know what the next right steps are to make sure that the right thing happens.”
But for QED, Fichtenbaum and Steen — the lawsuit, one taking the anonymous memo seriously, has already done damage.
“This anonymous document contains many false and misleading statements about me, apparently designed to assassinate my character and discredit the work that I have done on behalf of our members to restore benefits and improve transparency,” Fichtenbaum wrote in a blog post in May.
Yost said his lawsuit will get to the bottom of this — and will determine who is telling the truth.
“I would tell [the teachers] to have a little bit of faith in the process,” the AG said. “All of this, however it turns out, is going to make their retirement more secure. It’s going to protect their interests. That’s what this is all about — protecting the teachers and their retirement.”
As he said, the state is at the beginning of the investigation process. There are still other issues to deal with — including if campaign finance laws were violated to allegedly contract steer.
“Are you investigating this a public corruption scheme?” we asked the AG.
“We are looking for the facts and we’ll follow where the facts lead us,” Yost responded.
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‘This article was originally published on News5Cleveland.com and is published in the Ohio Capital Journal under a content-sharing agreement. Unlike other OCJ articles, it is not available for free republication by other news outlets as it is owned by WEWS in Cleveland.
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