COLUMBUS, Ohio — The Ohio retired teachers’ pension fund board has decided not to move forward with the controversial consulting firm that has been the subject of my investigations.
The State Teachers Retirement System (STRS) Governance Committee voted to recommend Global Governance Advisors (GGA) for the governance advisory contract — instead of The Hackett Group. The full board, those who were there, all voted in favor of GGA a few hours after the recommendation.
GGA had strong references for their governance consulting for pensions across the country. They previously worked for the Wyoming Retirement System, City of Austin ERS, Louisiana Municipal and CalSTRS. Their base cost was $110,000 per year with an hourly fee for other work.
Senior staff had raised red flags, saying Hackett has no applicable experience, no references, personal ties to the board chair and costs triple that of the competitors.
Our reporting was credited as one of, if not the main, reason why the firm decided not to hire Hackett.
My records request showed that Hackett had contact with a board member after the requests for proposals opened, which should – according to ethics statute and STRS policy – result in an immediate disqualification.
For our two investigations into Hackett, click here.
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.
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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.
Click here to learn more about the lawsuit.
We have covered this controversy from the beginning, including over a dozen recent stories dealing with the latest problems around the alleged corruption plot. Watch and read the story below for a more in-depth recap.
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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.
Following that interview, Fichtenbaum did an interview to defend himself. In this one-on-one interview, Rudy Fichtenbaum explained his side — and why he is still considering a deal with the investment firm at the center of the scandal.
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.
We revealed on Monday that Scott Hunt, the appointee of The Department of Education and Workforce, is now no longer on the board. Carolyn Everidge-Frey has replaced him.
Governance decision
I reported in September that Hackett, as STRS Acting Executive Director Lynn Hoover said, has a lack of experience, no usable references and cost triple compared to the other finalists. The Ohio Retirement Study Council (ORSC) had previously vetted them for another job they applied for in 2021, and still no references or applicable experience was found, according to documents I obtained through records requests.
They neglected to report alleged conflicts of interest and denied said conflicts when they came to light through our reporting and questions from other board members.
A vetting report brought up concerns with one of Hackett’s principals — Chris Tobe.
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.
My new investigation, published Monday, found that Tobe and Chair Rudy Fichtenbaum communicated in the spring. Fichtenbaum had previously told me that he didn’t know Tobe and had never spoken to him.
Tobe sent Fichtenabuam an email with what appeared to be a crisis management plan. Said plan was followed or is currently being attempted to be followed by the board.
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"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 I had this document, Fichtenbaum told me he didn't know Tobe.
"I've never spoken to Chris Tobe," Fichtenbaum told me in September.
I 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 Monday.
The Ohio Retirement Study Council told me that if they had known about the crisis plan, they could have considered it another conflict of interest.
Click here to learn more about the crisis plan.
But it wasn't just that email thread that in my records request that caught the attention of the board members.
"I also, as a point of clarification, would like to understand a little bit more about this public records request,” board member Claudia Herrington said during the governance committee hearing. "Because we've got two communications here with Chris Tobe to Rudy."
The crisis plan was from April 20, while another email was from May 24.
The May email details "real corruption," citing claims of secret no-bid contracts which the governor, staff and Ohio Education Association doesn't want STRS board to "know."
When businesses are applying for a job with STRS, they are forbidden from making contact with anyone affiliated in a select period of time. The problem with this email is that the RFP (requests for proposals) process began May 20, four days before Tobe's email.
Herrington brought up our reporting, calling for an immediate dismissal of the firm and for Fichtenbaum to recuse himself from this vote.
"Is this even a vote that Rudy can take, or does he need to recuse himself because he's not a disinterested party based on these emails," the board member continued.
She explained that STRS policy would require contact during this period to result in an immediate dismissal.
"We need to have a consultant who's going to follow the rules, and this respondent obviously did not care about that and was contacting members of the board after the RFP process started, so they should be disqualified," she said.
The board members who had previously been supportive of Hackett, including Fichtenbaum, distanced themselves or were quiet. Fichtenbaum had previously told me Hackett was his top choice.
"Having heard GGA, I thought they were more impressive," Fichtenbaum said. "I'm going to move to recommend that the Board select GGA to serve as the board's governance consultant."
The full board voted to approve the committee's recommendation Wednesday evening to approve GGA.
