COLUMBUS, Ohio — Attorney General Dave Yost has 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 is now speaking out.
A (somewhat long) recap
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 QED.
We have been covering this controversy from the beginning, including a dozen recent stories dealing with the latest problems around the alleged corruption plot. To get a larger overview of the situation, we did a Q&A with viewers and readers.
QED was started by former Deputy Treasurer Seth Metcalf and Jonathan (JD) Tremmel. Metcalf worked under Josh Mandel in multiple capacities, including as deputy treasurer and 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 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 AG states that the pair should be removed because they broke their fiduciary duties of care, loyalty and trust when "colluding" with QED.
Click here to learn more about the lawsuit.
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.
Transparency
Educators are caught in the crosshairs of this legal battle.
"I'm kind of in this fight," former teacher Robin Rayfield said. "I'd certainly like to just be retired."
Rayfield has been pushing for transparency from STRS. He leads the Ohio Retirement for Teachers Association (ORTA), the faction of reformers. They have played a major role in electing board members who also want to change the financial system.
"The reform majority has really only been in place for a couple of meetings," he explained.
AG Yost also wants transparency.
I've obtained his eight newly filed subpoenas. They went to QED's three separate entities, a business called OhioAI, STRS, Metcalf, Tremmel and former STRS board member Bob Stein.
For his first time talking about the civil suit, Metcalf answered some of our questions over email. We were not able to have a back-and-forth but may be able to in the future.
"QED is surprised and disappointed that the Attorney General’s office did not reach out to QED during the three years the office has been aware of the anonymous accusations," Metcalf said. "Allowing QED to illuminate the truth could have saved taxpayer money."
Metcalf is referencing prior allegations of concerns from STRS staff about the relationship between QED and several board members.
"QED welcomes the opportunity to present the truth. It is unclear how the Attorney General’s office will prove that QED was involved in a breach of fiduciary duty when our engagement with STRS has been legal, ethical, and proper," he continued.
Yost didn't reach out to him to speak before filing the lawsuit accusing him of collusion, he said.
"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," he 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."
Yost not making contact until now isn't surprising, Case Western Reserve business law professor Eric Chaffee said.
"There are concerns about making sure that evidence is maintained, that ultimately the truth is discovered," Chaffee said. "As a result of that, in some instances, when you interview somebody, you ask them pointed questions and leading questions and suddenly they know exactly what you're looking for. As a way of making sure that the end varnished truth comes forward, sometimes you actually serve the discovery request first before you completely and totally reveal your hand."
Metcalf and Tremmel must provide all communication between them and anyone related to STRS — and Rayfield.
"We have no commitment, no relation," Rayfield said. "There's never been any money exchange between ORTA and either Seth or Bob Stein or JD Tremmel."
He continued that it is possible that he and the men could have been "at the golf course," and bought them beers or Gatorade.
"But what they have provided to me is a level of knowledge or expertise that I simply don't have," the former teacher said.
QED has helped navigate and explain financial documents that come from STRS, he said.
"There's probably very insignificant information that they will find, maybe some of it they'll find funny because I might joke with them or laugh, you know, get a funny email and send it back to them," Rayfield continued.
STRS was subpoenaed for information regarding their 14-page memo.
"STRS Ohio will continue to fully cooperate with the Ohio Attorney General’s office regarding its investigation into the governance of the pension system. STRS Ohio operations, as highlighted by recent audits, continue to be well-run. Teachers in the classroom and retired educators can rest assured their pension is safe. STRS Ohio members with questions should contact the pension system through the website or by calling STRS Ohio toll free at 888-227-7877," STRS spokesperson Dan Minnich told me.
The STRS memo claims QED and ORTA have worked together, specifically when it comes to elections. But Rayfield believes he and QED are being targeted for being critical of the pension board.
"The anonymous, self-serving accusers attack everyone who has been critical of STRS: including defendants Wade Steen and Dr. Rudy Fichtenbaum; former STRS board members Bob Stein, Steve Foreman, and Yoel Mayerfeld; former SEC attorney and pension expert Ted Sidle [sic]; renowned pension consultant Richard Ennis; teacher unions; individual active and retired teachers; eight of the eleven current STRS board members; and the media. We are another voice in the chorus of criticism. QED has a relationship with some, but not all, of these individuals and groups. The inference that we aren’t allowed to talk to someone is ludicrous. Frankly, the only people supporting STRS staff are either political or consultants and lobbyists paid to reinforce STRS’ false narrative," Metcalf said.
Chaffee disagreed.
"There's smoke here," the professor said. "Often when there's smoke, there's fire."
Regulations prevent Yost from bringing frivolous lawsuits, the expert added.
"There is reason to believe that there may have been misconduct that rises to the violation of the law, otherwise they wouldn't have actually brought this matter," Chaffee said. "There's at least something worth looking into, even if it's ultimately found that it doesn't rise to a violation of the law."
Yes, the requests are wide — such as asking for all communications on their business plan, but Yost has a plan, Chaffee said.
"The AG knows what they're doing here in how you conduct discovery in a sophisticated matter; this is done in a very strategic fashion. Some of the choices may look odd and haphazard, but It's almost certain that they have a plan here," he added. "And based on the fact that they're dealing with confidential sources, very likely that they know exactly what they're asking for."
I asked what worried Metcalf the most about revealing the communication between himself and STRS board members.
"QED has nothing to hide and has always followed the letter and spirit of the law," he responded.
Communication
Before Yost sent out the subpoenas, I made several of my own records requests to the pension fund, asking for all communications between the board members and QED.
A small portion was returned, showing Fichtenbaum's communication with Metcalf and Tremmel. But they weren't over text messages or emails.
Screenshots from Fichtenbaum’s phone show that he used the encrypted app Signal to speak to the men. This app automatically deletes messages within a set time of the receiver reading them; however, the call logs don’t. Even after Yost filed the lawsuit in May, Fichtenbaum talked to QED leaders more than two dozen times throughout the following month and a half.
"It's awfully strange that they're using apps that essentially will not allow their communications to come to light; it provides no record of them," Chaffee said. "And ultimately, it's going to make it more difficult for the AG to figure out what went on here."
As a journalist, I have and use Signal for sources to discreetly provide documents and information that they don't want to be traced back to them. Using the app at the Statehouse is incredibly common, especially after the FBI got access to the phones of politicians and lobbyists during the FirstEnergy scandal, which led to plea deals, prison sentences and suicides.
"We’re just a few of the 40 million people who use this messaging app," Metcalf said.
That being said, the app itself is about being secretive, Chaffee said.
"The more records you create, the more problems you may have down the road, especially if there's some sort of claim of wrongdoing, like the issue here," he added. "It's rather disturbing that the state would be using this type of app."
Lawmakers talking amongst themselves to avoid reporters' records requests is one negative thing, but using a disappearing chat to talk to an investment firm that wants to do business with you is a whole other game, he said.
"Ultimately, if everything is on the up and up, what's wrong with having everybody take a look at it?" the professor said.
Signal's privacy protections may not be that protective, though. When reading through their policies, it states that they will give information "to meet any applicable law, regulation, legal process or enforceable governmental request." That being said, the app does state that it can't "decrypt or otherwise access the content of your messages or calls."
Yost hasn't subpoenaed Signal yet. We reached out to the app to see if they would even have already deleted messages in their system.
Litigation will continue as we await our next chunk of records.
To ask questions or provide comments about STRS, please email Morgan.Trau@wews.com with the subject line "STRS COMMENT." Or, fill out the form below.
Sources are welcome and encouraged.
