Ohio AG investigating alleged 'hostile takeover' inside teacher's pension fund

Ohio Attorney General Dave Yost has launched an investigation into the teacher's pension fund after allegations that a "hostile takeover" is putting educators' money in jeopardy.

The State Teachers Retirement System of Ohio (STRS) is a $90 billion pension fund — and has been involved in controversy for years.

The Reformers

Educators have had it hard the past few years.

"I'm burnt out," Parma schools teacher Terry Caskey said.

But the hardest thing about Caskey's job doesn't actually take place at work.

"I'm about five to six years away from retirement," she said. "I'm worried about STRS."

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.

Currently, STRS Executive Director Bill Neville is on leave while Yost investigates allegations of violent outbursts and sexually explicit language.

This has led to a group of pensioners, who have named themselves the 'reformers,' to fight for change. Caskey is one of them.

"If teachers aren't happy, if teachers are struggling, then that should be a call to STRS," she said. "But it's crickets. They are not acting in the best interest of teachers."

She was even more exasperated when the board approved $10 million in bonuses for their staff.

"There are many teachers in Ohio that are in poverty, yet we have investors and staff members that are getting big salaries and $10 million in bonuses," she said.

Lately, the reformers are growing in size through the election process and getting more access to the board, she said.

The 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.

While there is fighting between teachers and the board — STRS' consulting firm Aon just cut ties with them.

"Often when there is smoke, there is a fire behind it," Case Western Reserve business law professor Eric Chaffee said.

Reformers have been asking for an investigation into STRS — and they are finally getting it. But not in the way they want.

Allegations

The concerns came from anonymous documents sent to Gov. Mike DeWine's office. The governor's spokesperson, Dan Tierney, said he believes they were prepared by multiple STRS staff members. Dozens of documents were obtained by WEWS/OCJ through public records requests.

The documents allege that several STRS board members have been doing the bidding of private investment group QED Systematic Solutions.

"Pension board members are required by law to act in the best interest of the teachers whose money they invest," Yost said Thursday. "I will take whatever action is necessary to protect teachers against private interests attempting to hijack their retirement accounts."

This separation by Aon worried DeWine, he said in a statement late Wednesday.

"This is a huge red flag, calling into question how STRS is operating and providing oversight," the governor wrote. "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."

Tierney elaborated, explaining that the "implication" was that STRS was so chaotic or the governance of the board was in such bad shape that they couldn't continue.

Aon declined to comment.

QED

QED 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 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 give them $65 billion so that they could allegedly restore the annual COLA and reduce how much pensioners have to pay into the system.

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 advisor. The men also didn't own the technology to "facilitate the strategy," the documents say.

Then, an evaluation of QED was done by the board's outside consultant, Cliffwater. The company highly advised not to follow their project or use them.

The document highlights then-board members Bob Stein and Yael Mayerfeld and current members Wade Steen and, later, Rudy Fichtenbaum. Each of them was supportive of QED.

The document accuses the members of directly collaborating with QED and using their documents for QED pitching. Other members raised concerns privately.

"You ought to be concerned about engaging in those types of interaction with any type of business that you have a relationship with," Chaffee said. "Is it permissible in certain instances? Probably — if everything is entirely fair. But at the same time, it raises tremendously large red flags about what's going on."

Once facing major roadblocks, QED 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.

The company 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. Caskey states there needs to be a change because the current board keeps hurting the pensioners. Board members in favor of QED agree.

"While Steen and Fichtenbaum are quick to accuse staff of being too conflicted to evaluate QED (arguing that their investment solution will eliminate jobs for investment staff), they appear not to recognize – or simply don't care – that QED's interest in securing business with STRS also creates a conflict," the document states.

After this year's election, it is possible that the reformers have a supermajority, meaning they could choose to invest with QED.

Alleged corruption

Caskey doesn't trust DeWine at all and believes the whole investigation into STRS board members and their relationship with QED is a "ruse."

"I also think that the governor is going to pull out every stop to make sure that he has control of the STRS fund because I think that's a cash cow," she said.

Originally appointed by John Kasich, Wade Steen is an outspoken reformer. He was reappointed by DeWine, but the governor asked him to resign last year. Steen refused, so DeWine removed him. DeWine cited Steen's alleged poor attendance at board meetings as reasoning.

Steen filed a motion in Ohio's 10th District Court of Appeals demanding to be reinstated — and he was. He returned to his job in April.

He agreed to an interview in the near future.

"We were concerned that Mr. Steen was seen as advocating for a very particular investment firm in a way that a fiduciary board member — it just didn't seem right," Tierney said. "It almost seemed like Mr. Steen was trying to tip the scales in favor of this particular company that didn't agree with the administration."

Caskey believes that this was the governor's way of silencing Steen from achieving reform, which she believes would have provided more transparency — and also a way to prevent administrative kickbacks. WEWS/OCJ has found no evidence of any administrative kickbacks.

"This thing has got so many tentacles and it just leads back to money, corruption and not being transparent with the members," she said.

She cites the House Bill 6 scandal for her reasoning.

In March 2023, a jury found that former House Speaker Larry Householder and former GOP leader Matt Borges, beyond a reasonable doubt, participated in the racketeering scheme that left four men guilty and another dead by suicide. Two other men are going through the court process currently — and the third died in April, with his death also being a suspected suicide.

In February, DeWine defended his top advisor after a criminal indictment alleged she knew about millions going to the now-deceased former PUCO chair Sam Randazzo prior to his appointment to power by the governor.

Former Chief of Staff Laurel Dawson helped vet Randazzo after her family had already received a $10,000 loan from him. The governor's team insists she didn't know the millions was a bribe payment.

The assertion that DeWine is involved in either of these issues is "absolutely ludicrous," Tierney said.

"There's no truth to that whatsoever," he added. "The governor's concern here is solely to make sure that these pension funds that are held in trust for retirees are managed properly."

Tierney said that the biggest issue for retired teachers is that they deserve a cost of living adjustment — and DeWine agrees with that.

"That allegation is complete and utter hogwash and should not be entertained," he said.

On the other side, some lawmakers have raised concerns about the similarity between QED and FirstEnergy — helping elect individuals to get their goal.

When Metcalf left the treasurer's office and started QED, he reached out to Neville, the executive director.

"Neville had interacted with Metcalf briefly when Metcalf was at the Treasurer's office and Neville was STRS's Chief Legal Officer," the document states. "Neville responded that QED would have to follow STRS's standard process for vetting investment proposals."

WEWS/OCJ reached out to the treasurer's office and requested his personnel file.

The office was asked if they had been aware, or had a record of, Metcalf working with STRS or other pension boards during his tenure at the treasurer's office. He had previously been a trustee for the Ohio Public Employees Retirement System and the Ohio Deferred Compensation Plan, according to his biography.

They were also asked if it was possible there would be a crossover in the roles of deputy treasurer or counsel with STRS.

Sam Rossi, communications director, directed questions to Metcalf about his "activities and interactions" while in the office since they were separate administrations.

WEWS/OCJ called and texted Metcalf's professional phone and did not hear back. He also did not respond to calls or texts to his personal cell phone.

However, Treasurer Sprague is concerned about the STRS allegations.

Sprague provided the following statement:

"Transparency and sound stewardship are the hallmarks of safeguarding our public dollars. However, tales of growing turmoil and recent allegations detailing a behind-the-scenes effort to overtake the STRS board not only run contrary to those principles – but are also deeply disturbing. At the end of the day, our pension board members must have their attention fully focused on protecting and preserving the funds for our retirees. I share much of the concerns expressed by Governor DeWine over these matters, and I support a closer look into the recent allegations."

Moving forward

For pensioners that just want their money, this whole situation is exhausting.

It is possible, Caskey said, that both QED and STRS are corrupt.

"This stuff blows my mind — trying to figure out who's holding the football," she added.

STRS Board Chair Dale Price provided the following statement:

"Recent audits demonstrate that STRS Ohio is well-run and that the pension fund is in sound financial position. Questions raised involve board governance. Teachers in the classroom and retired educators should know their pension is safe and secure. STRS Ohio will continue to protect the stability and integrity of the organization and will fully cooperate with all offices in their review of the pension system."

Morgan Trau is a political reporter and multimedia journalist based out of the WEWS Columbus Bureau.