Rudy Fichtenbaum. (Photo by Morgan Trau, WEWS.)
The revolving door at the Ohio retired teachers’ pension fund continues to swing ahead of a major and controversial vote on Thursday that could give a contract to a firm that senior staff say has no legitimacy.
State Teachers Retirement System (STRS) Board member Scott Hunt has been replaced, according to documents we obtained Friday morning. We discovered this while digging deeper into the allegations of personal ties between leaders of the board and The Hackett Group.
A (somewhat long) recap
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. As of this week, there has been a dismissal and two senior staff resignations.
We broke the news in September that Executive Director Lynn Hoover and CIO Matt Worley resigned after months of controversy.
In May, Attorney General Dave 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 14-page memo Yost received.
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.
STRS staff have explained that they know the COLA is essential and are working to get it back. They added that the system is functioning well — better than any of the other pension systems in the state. A report done by the Ohio Retirement Study Council found that STRS has a higher return than any of the four other state pension systems.
The reformers also believe 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 August, Yost filed a slew of subpoenas against QED and others allegedly involved in this scheme.
The same month, QED spoke out to us for the first time, and so did the AG.
As of now, Steen has termed off his board seat, and got a tearful goodbye from pensioners in September.
DeWine has appointed attorney Jon Allison to the board, a former top aide for Former Gov. Bob Taft.
In late September, our investigation revealed that STRS was, once again, moving to hire a firm that allegedly had a lack of experience and personal ties to the board leaders, according to senior staff.
Switch up
The STRS board is made up of 11 members. There are seven elected positions, five being working teachers and two retirees. 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 (DEW) both get to designate an expert.
Dr. Hunt, the appointee of DEW, is now no longer on the board. We obtained the letter DEW Director Steve Dackin sent to STRS, explaining that another DEW employee, Carolyn Everidge-Frey, would be replacing him.
Although Dackin did not give a reason, Hunt, a vocal status-quo member, joined with the reformers — and the rest of the board, for that matter — that the state should raise employer contributions to STRS, something that could cost Ohio more money but would benefit teachers.
Hunt proposed the idea of going around the state to see what educators thought of this change.
Another reason could be that Dackin wanted more of a stake in his designee. Just in 2023, the former Ohio Department of Education (ODE) became DEW. Previously, the Board of Education was the one to appoint the STRS member; now, it is the director of DEW. Hunt was a holdover from ODE times, so he wasn’t truly chosen by Dackin.
Everidge-Frey is likely to share very similar beliefs to Hunt. She is currently the head of the Center for Advancing Professional Supports inside DEW.
We reached out to Hunt on Friday and Monday but didn’t hear back.
We also reached out on Monday to DEW and Everidge-Frey personally but didn’t hear back. This was to be expected because Monday was a state holiday, and many, but not all, offices took off.
STRS, though open, had nothing more to add from the letter of appointment change.
The board changes come ahead of a major decision.
Governance
STRS will likely be awarding a firm its governance consulting contract on Thursday.
Back in May, consulting giant Aon pulled out of STRS. They provided board governance advice and services. This was the blow that made STRS staff sound the alarms to state executives about possible corruption.
STRS staff, in the anonymous letter, believed Aon left due to the possible hiring of QED and the instability of the board. Two months later, McLagan, a data and analytics company that had been providing compensation advice, also quit.
Although the company did not provide any reasoning, it should be noted that they specifically consulted on performance-based incentives (PBIs). In June, the STRS board blocked staff from getting these PBIs, which can be referred to as bonuses. Then, McLagan quit. Two weeks after they quit, the PBIs were restored because the board was informed that they would be breaking the law by not having them.
We asked Hoover if she also thought the consultants left due to the chaos.
“Their termination speaks for itself,” she responded. “But that is disheartening to lose a good governance consultant… investment compensation consultant.”
This means that for the past four months, there has not been a main consultant advising the board on how to govern. But the search for a replacement is nearing its end.
Several firms applied. The staff selected Segal and Global Governance Advisors (GGA), the two that they believed were most qualified. Chair Fichtenbaum had asked to bring The Hackett Group forward, as well, according to STRS.
Fichtenbaum told us in late September that he was leaning toward Hackett.
“I thought their presentation was impressive,” Fichtenbaum said.
But STRS senior staff have been urging against them.
“I have grave concerns about this firm from all levels — when I look at their lack of any experience doing this, the references are not there,” Acting Executive Director Lynn Hoover said in an interview. “They’re not meeting the standards.”
We looked into the firm. We reported in September that Hackett, as Hoover said, has a lack of experience, no usable references and cost triple compared to the other finalists. The Ohio Retirement Study Council had previously vetted them for another job they applied for in 2021, and still no references or experience was found.
The vetting report brought up concerns with one of Hackett’s principals — Chris Tobe.
The entrance to the Ohio State Teachers Retirement System headquarters in Columbus. (Photo by Marty Schladen, Ohio Capital Journal.)
Tobe is one of the most vocal critics online of STRS, accusing staff of “hiding corruption” and “doing anything to protect their excessive compensation,” according to social media posts. He has also blasted state officials and others who don’t agree with him, according to the dozens of screenshots inside the vetting document.
“Comments on social media made by Hackett’s Chris Tobe called into question the independence of the firm,” according to the Ohio Retirement Study Council.
The same complaint was made in the STRS analysis.
“Based on public statements by Hackett’s Chris Tobe regarding STRS Ohio, there are concerns regarding the objectivity of the firm,” the document states.
It goes on to list online posts made about the board, management, stakeholder groups and politicians. Another concern was the close relationship between Tobe and Edward Siedle, who investigates pension funds and is currently in litigation with STRS to release records. The pair co-authored a book on pension fraud, however, Siedle claims they did not. According to Amazon, and advertisements of the book, both men are listed as authors.
We pressed Fichtenbaum on why he would want this firm — and about allegations of a connection between him and Tobe.
“I don’t have any personal relationship at all with him,” the chair said.
Along with finding out they were friends on social media and engaged in the same groups, a newly obtained records request shows that the pair communicated in April and May.
Four days before Aon quit, Tobe sent Fichtenabuam an email with what appears to be a crisis management plan.
“You need to move fast,” Tobe wrote.
He then listed a game plan, one that the board has followed:
Elect a new chairman
Ask for the resignation of both the executive director and CIO
Suspend all bonuses
“Private Equity interests are working hard on the weakest links in your new majority as we speak. Appoint strong chairs and members to the Investment Committee and Audit committees. Delay will destroy this opportunity,” Tobe wrote.
In addition to those, he had other ideas that the board is either currently working on or has proposed interest in:
Appoint an interim CIO who reports to the investment committee, and an executive director who reports to the full board and an internal auditor who reports to the audit committee
Approve $90,000 for “immediate outside hourly board consulting until the next full board meeting”
Make all contracts public
Disclose all advisory positions on private equity and other alternative boards
Release travel records
“The ExDirector and CIO are probably in the office now shredding documents,” Tobe continued.
The email ended with the consultant offering to help “in any way,” listing it could be by project or hourly.
But before we had this document, Fichtenbaum said he didn’t know Tobe.
So which is it?
“I’ve never spoken to Chris Tobe,” Fichtenbaum said in September
We asked the chair for an interview about this communication, but he said he was busy. He did give a statement.
“There is really nothing to explain. He wrote me an unsolicited email and I responded. That is not a relationship. You texted me and I am responding. But if someone asked me what is my relationship with Morgan Trau, I would say I have no relationship. Just because you speak to someone or respond to an email does not mean there is a relationship. When people take time to send me an email, I generally try and respond as a courtesy. That is what happened with Chris Tobe,” Fichtenbaum texted me.
In our records request, we didn’t get Fichtenbaum’s response. He forwarded his response, which is allegedly dated April 20.
“In our case, I think the real problem is our senior staff all of whom benefit from the current system that is in place,” Fichtenbaum wrote. “I believe they went to the Governor to get Wade Steen kicked off the Board to protect their interests.”
The chair continued, talking about the workings of how each committees are made up.
“We cannot approve anything outside of an official Board meeting because of the Ohio public meetings laws. All business has to be conducted in public meetings with notice to the public. So there is no chance of hiring a consultant outside of a Board meeting,” Fichtenbaum’s response states.
“He wrote me an unsolicited email and I responded,” Fichtenbaum texted me. “That is not a relationship.”
This is where Case Western Reserve University business law professor Eric Chaffee disagreed.
“The fact that it was so detailed, meaning that the documents that we have suggest that there was a thorough discussion of what looks like a crisis management plan,” Chaffee said. “If there were people asking questions prior to giving a contract regarding whether or not there were personal relationships, this seems like something that really should have been disclosed.”
Although he is bewildered by it, the professor said it isn’t illegal for Hackett to give free advice to the board as long as everything is transparent.
However, the proposal requests, known as RFPs and sent out by the Ohio Retirement Study Council, always ask for conflicts of interest or any even perceived relationships between an applicant and the whole Ohio government as a whole, including the body they want to work with.
Hackett did not disclose any relationships, ORSC informed.
ORSC was also unaware of the crisis management email. Had they known about this, they could have considered this a conflict of interest, the ORSC informed.
“The fact that there are personal communications between board members and this consulting firm that are not being disclosed are of concern,” Chaffee said.
Not only is communication not being disclosed, but it is being actively denied, board member Alison Lanza Falls argued.
“The STRS Board has a very important decision next week to engage a world-class governance consultant to assist us in working through meaningful changes to our existing Governance Policy,” Lanza Falls told me. “In my opinion, one firm has unfortunately disqualified itself by making representations in the August Governance Committee meeting, which upon STRS staff due diligence, were not true.”
The board member had asked Hackett when they were presenting if anyone on their team had personal or professional relationships with any individual who is currently suing STRS. They denied it.
“That turns out to be patently false,” Lanza Falls continued. “As you have reported, there is broad evidence of longstanding and continuing ties between the Hackett team and Mr. Siedle.”
Another concern that Lanza Falls had was misrepresenting the ORSC’s rejection of Hackett in 2021. Hackett claims they got “second” in the proposal process. ORSC confirmed that isn’t true at all, and they eliminated them.
We reached out to Tobe and Toni Hackett Antrum, president of Hackett, to ask why the communication wasn’t disclosed.
Tobe gave a statement ignoring the question but saying, “I have actively been talking with hundreds of Public Pension trustees, and other interested parties for the past 27 years on pension transparency issues. I have provided consistent views on accountability and transparency in all these interactions and in my book “Kentucky Fried Pensions” and in dozens of articles and presentations.”
We asked Fichtenbaum if Hackett was still his top choice.
“I am not going to comment on how I will be voting this week. We asked for additional information. I will look at that information and listen to the discussion and then decide how to vote,” he texted.
Follow WEWS statehouse reporter Morgan Trau on X and Facebook.
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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