Ohio Attorney General asks court to remove two teacher pension fund board members

COLUMBUS, Ohio ( WCMH ) – The Ohio Attorney General wants two board members of the state’s teacher pension fund removed, claiming they violated their fiduciary duty by advocating for a “backdoor” investment scheme – including the board’s newest chair.

Attorney General Dave Yost filed a lawsuit Tuesday seeking the removal of investment specialist Wade Steen and retired economics professor Rudy Fichtenbaum from the board of the State Teachers Retirement System, the $91 billion pension fund for retired public school teachers. In his complaint, he accuses Steen and Fichtenbaum of colluding with unqualified, personal acquaintances of Steen to “peddle to STRS a secretive and untested investment scheme” that would “spell disaster for Ohio teachers” — accusations both members emphatically deny.

The board has been mired in controversy between the governor’s ultimately failed attempt to remove Steen from the board, anonymous allegations against its executive director , accusations of campaign finance law violations , and calls from the governor for a state investigation into claims of a “hostile takeover” by outside interests . It also comes as Steen and other reform-minded board members – who have openly criticized lavish bonuses for investment staff amid billion-dollar revenue losses and a lack of cost-of-living adjustments for retirees – are poised to strengthen their new controlling majority of the board.

Hours after news of the lawsuit became public, a divided board voted to replace Chair Dale Price with Fichtenbaum. Retirees attending the meeting applauded the move.

Yost’s complaint largely contains accusations from an anonymous memo his office published last week when announcing an investigation. The memo, first sent to the governor, and Yost’s lawsuit accuse Steen and Fichtenbaum of aggressively pitching an alternative investment scheme to their personal benefit – and to the detriment of the pension fund’s beneficiaries.

Under the alleged scheme, about $65 billion of STRS’s current assets would be managed by a company called QED and, apparently according to investment committee member Steen, increase the fund’s revenue by $4 billion. But Yost says that QED is operated by close acquaintances of Steen who lack relevant investment management experience.

Yost’s complaint alleges that even after an investment consulting firm recommended STRS not pursue a relationship with QED, Steen and Fichtenbaum continued to pressure the board into adopting their plan. His complaint also claims that the Ohio Retired Teachers Association has picked up Steen and Fichtenbaum’s mission and has launched an attempt to sway public interest in their favor.

Yost claims that in pushing for a relationship with QED, Steen and Fichtenbaum violated their fiduciary duty to the retirement system by using “their public office for private gain.” He has asked a Franklin County Court to remove Steen and Fichtenbaum from the STRS board and to permanently bar them and “those persons in active concert or participation with them” from serving on STRS’s investment committee.

During a tense board meeting Wednesday afternoon, Steen called Yost’s investigation a “sham” and questioned the impartiality of the board’s counsel, who are lawyers with the attorney general’s office. In an interview with NBC4, Steen denied the lawsuit’s allegations and called the filing a “red flag that something’s going on.”

“I was removed from the board by the governor. I get returned to the board, now I’m trying to be removed by the attorney general. What don’t they want us to see?” Steen said. “All I want is transparency and information. What is going on?”

Steen said he doesn’t believe Yost’s office could have completed an investigation in the week since it was launched. He also accused former board leadership and STRS’s investment staff of hiding agreements and bad investment decisions – and said that when he “got too close” to uncovering it, state leaders worked to remove him.

At a bill-signing event, Gov. Mike DeWine said he was “not judging” the veracity of the claims made in the anonymous memo he received but said it was his responsibility to notify the appropriate agencies.

“When these allegations are made — and these are serious allegations — then I have an obligation to turn it over to every agency that might be impacted or might have interest in doing an investigation — or should I say an obligation to investigate,” DeWine said.

Minutes before, he said “we have strong evidence that there was serious discussion about taking two-thirds of the money and putting it in a very, very untested program.”

Steen said the accusation that he pitched moving two-thirds of the pension fund’s assets into an alternative scheme is false. As Fichtenbaum remembers it, in 2020, he proposed putting $250 million into an index fund — $65 billion was never on the table. Steen echoed Fichtenbaum’s recollection..

“I’m a little bit angry because they attacked my character, and they’re doing it in a political way. This is a PR campaign. It’s a PR smear campaign being played by politicians at the highest level,” Steen said. “I’m not that. I’m just a CPA trying to fight for teachers, and I feel like I’m up against the 800-pound gorillas.”

Read the full complaint below .

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