COLUMBUS, Ohio — An investment firm worked extensively with an embattled former member of the retired teachers' pension fund, according to text messages in newly released court documents.
Communications obtained via a records request reveal that QED associates consistently told then-board member Wade Steen what questions to ask, gave him documents to propose and pushed him to follow its plan.
Seth Metcalf, the man being accused of scheming with Steen, has now defended himself from the AG's filing.
In the court battle between Attorney General Dave Yost and former STRS board member Wade Steen and current board chair Rudy Fichtenbaum, the AG provided extensive text messages between Steen and the founder of the investment firm at the center of an alleged corruption case.
"The extent to which Steen communicated, coordinated, and acted almost as an agent of QED (rather than a fiduciary to the STRS Board) is shocking," the filing states.
In May, Yost filed a lawsuit to remove Steen and Fichtenbaum, 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 Steen and Fichtenbaum have been doing the bidding of investment firm QED.
Steen and Fichtenbaum have repeatedly brought up how quick the turnaround time was between Yost receiving the memo and filing the civil suit. 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.
Steen had asked the court for a partial summary judgment because he is no longer on the STRS board, so he thinks the asking for his removal is "moot."
This week, the state asked the judge not to issue judgment because the AG asked for the "permanent" removal of Steen and Fichtenbaum, meaning they won't be allowed to make a "comeback," the docs state.
"The salient question is not whether Steen is currently on the Board, but whether he should ever be allowed to join the Board again," the filing says.
Steen argues that the AG's "request for an accounting and disgorgement of unlawful benefits allegedly received by Steen from QED is not supported by the evidence," which the state denies.
The circumstantial evidence and exhibits provided by the AG team "must be considered" by a jury, the state argues.
"The self-serving narration of facts set forth in Steen’s motion is unsupported by record the evidence," the state said. "Steen alleges that the Complaint was spurred by some vendetta... That narrative is both false and irrelevant to the motion."
Recap
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 a 14-page whistleblower 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.
Other names referenced frequently in the whistleblower memo were former board members Bob Stein and Yoel Mayerfeld. Both were supportive of QED at first. Stein abruptly resigned, after texts showed that he was somewhat backtracking on support for the investment firm.
The STRS memo claims QED and ORTA, THE Ohio Retirement for Teachers Association, including leaders Robin Rayfield and Dean Dennis, have worked together, specifically when it comes to elections.
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.
In late August, Yost filed several 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.
"Ohio law does not allow Steen to now dodge liability for breaches of fiduciary duty as a public trustee simply by leaving the Board," the AG team's states in the new filing.
Texts
Texts between Steen and Metcalf and Tremmel show that the pair consistently told the board member questions to ask, ideas of what to say and pushed him to follow their plan.
There are hundreds of text messages.
In a message from Metcalf to Steen in August of 2022, Metcalf seemingly gives the board member talking points.
1. Just doing my job as trustee - not getting paid. Bad stuff going on. Would be easy to rubber stamp, but I refuse to be part of the problem.
2. Problems at STRS are real for active and retired teachers and are not going away. Teachers are pissed (and have been for a long time) that staff are getting rich while teachers get the short end of the stock.
3. Cash burn of $4B a year means STRS’ assets are shrink quickly during this recession, high risk of entering a “death spiral.” Stock market boom over that last decade only allowed STRS to tread water. Going to be very clear in next couple of years that STRS will be bankrupt in 15-20 years. Only options are further benefit reductions, higher contributions, a state bailout or earning dramatically more money.
4. STRS is tone deaf and arrogant. Won’t change.
5. Teachers are driving change. You should talk with them.
That is one example of the dozens of pieces of advice Metcalf gave. Although some texts are out of order date-wise, there is a pattern.
In what appears to be an effort to get Steen to send a letter to an individual, Metcalf worked on editing for him.
"Not yet, I need your edits that you mentioned and did not want to send in advance of talking with him so as not to give him any advantage," Steen said.
Metcalf also talked about vote counts in order to sway other board members to follow his and Steen's agenda, the texts show.
"You and Hunt should call Dale together. We NEED him," Metcalf wrote in Dec. 2020.
After sending Steen more "themes" and topics to cover during meetings and private pitches, the board member asked for additional help.
"Can you resend me your 3 points on why we need an active engaged Investment Comm," Steen asked Metcalf. "You gave me a copy but I’ve misplace[d] it."
Private conversations were also discussed, the texts show.
"Stein really wants this, I think he is just keeping his powder dry," Metcalf said in Oct. 2020, although, through the texts, it is unclear what he is addressing. "He wants a 'big' solution to be able to charge fees."
"I won a few battles in Exec meeting that we can discuss later. I think we can win this but I need to nuisance it," Steen said.
"Can’t wait to hear about exec committee. You’re not done at all if it fails. It is only the beginning - you’re just staring to figure out this big problem," Metcalf continued. "Just like in the legislature, have a vote to put people on the record."
"Be patient my friend," Steen replied.
"I think you’ve got the votes! Make the motion! Announce that you have a solution! Please call when you’re free. I'm here," Metcalf texted Steen.
"I'll call in a few minutes," Steen responded.
This was during the time that Steen, according to texts, was attempting to have the board adopt COLA, or cost of living adjustment, solution — possibly QED or their subsidiaries.
Then, texts show a group chat between Steen, Metcalf and Tremmel. The pair constantly text Steen during board meetings with advice, including numerous messages of "Vote!" and "Force the vote" when it comes to policy.
"Thanks for the support today!" Steen said.
"Wade - you are a champion! We moved the ball down the field today and have time to recoup and refresh during the holiday!" Metcalf texted the group.
Throughout all the texts, the pair argue for transparency and accountability of the STRS staff, arguing that they are skewing the benchmarks for bonuses for staff.
"Wade: Please ask each person to summarize four things: sharpe, return, capacity and edge during the next twelve months. We need $1.5 billion today. How fast can we get to that?" Metcalf asked in Nov. 2020.
"Give him the dagger," Tremmel said about another board member seemingly disagreeing with Steen and QED.
In another message, Metcalf asked to overhear a conversation between Steen and a board member.
"Wade - we do you plan on calling Stein? We’d love to be a fly on the wall," he said in Nov. 2020.
Metcalf requested focus.
"Wade: need to keep eye on the prize," he texted in Nov. 2020.
One of the exhibits shows a text in which Steen criticized Stein, once again, for not going with his plan.
"I think Stein is trying to work through staff to get your concept or the concept of using our Balance Sheet implemented by working through staff. But working through staff will kill it," Steen emailed Metcalf in Feb. 2021. "It seems he is not willing to use the Board’s authority to push it is my gut feel. This is on the QT."
In April of 2021, Stein resigns abruptly, much to the confusion of the group chat.
"Why did he leave?" Tremmel asked.
"I have no idea," Steen responded.
I reached out to Steen, Metcalf and Tremmel for comment.
"Wade, this is the benefit of persistent, thoughtful work. We are starting to see green shoots of the seeds we’ve sown. Great work. You were masterful," Metcalf said in Sept. 2020.
The court case will continue as the board tries to function.
RELATED: Ohio lawmakers may remove teachers' pension board voting powers as chaos continues
"Today will go down in history," Tremmel texted in Feb. 2021.
QED response
Metcalf sent me a lengthy statement, answering most of the questions I had, including the alleged appearance of impropriety. He, however, didn't touch explicitly on the fact that he was giving exact directions on what to say and how to say it.
"It’s important that Ohio teachers, taxpayers and officials don’t miss the most important revelation from this week’s court filings — the Attorney General’s office was unable to find a single piece of evidence supporting claims by STRS staff of improper dealings between QED and members of the STRS board. As we’ve said all along, no board member ever received nor was promised anything from QED. Period," Metcalf said.
He said that the opponents of reform will continue to slander, because that's the "best" they can do.
"QED’s highly-qualified team worked closely with Steen to expose STRS’ mediocre investment performance because we know STRS could earn more money for teachers. STRS is misleading stakeholders and paying improper bonuses by overstating its investment performance... Our index-based solution threatened the jobs of STRS internal investment staff, who have misrepresented QED and our solution," Metcalf continued.
STRS officials have continued to state that QED is incorrect.
The Ohio Retirement Study Council posted a report in 2022 that compared STRS with other statewide public pension systems from 1999-2022. During this time period, the average annual STRS return was 6.85%, while the Ohio Public Employee Retirement System (OPERS) was 6.14%, the School Employees Retirement System of Ohio (SERS) was 6.52%, Ohio Police & Fire Pension Fund (OP&F) was 6.76% and Highway Patrol Retirement Systems (HPRS) was 5.88%.
STRS staff members have pointed out this data on numerous occasions when addressing that the fund isn't failing like critics say it is.
"STRS Ohio’s investment consultant, Callan, shared that STRS Ohio’s total fund return outperformed its benchmarks and ranked in the top 10% of public funds tracked by Callan for the three-, five- and 10-year periods ending June 30, 2023," STRS spokesperson Dan Minnich told me last year.
Metcalf continued to defend Steen.
"Steen fulfilled his fiduciary duty (and created enemies) by investigating the suspicious fact that STRS has consistently used a higher unaudited investment return for paying staff bonuses and a lower audited return for paying teacher benefits," Metcalf said.
The benchmarks for STRS bonuses has been a controversial topic and a point of contention for Steen and other reformers.
"We helped Steen extract information on STRS’ investment costs and expenses; encouraged him to request that the Attorney General appoint transparency counsel; and recommended that he demand an independent audit of investment performance before staff bonuses were paid, which STRS staff rejected," Metcalf added.
I asked why he kept using the term "we" in conversation with Steen.
"'We' refers to the loose coalition of teachers, teacher organizations, QED and STRS board members trying to understand how STRS has failed to pay promised benefits to teachers while claiming superior investment performance," he responded. "There is nothing improper about a second set of eyes to shed light on bureaucracy. STRS staff and consultants were paid millions, we’ve been paid nothing."
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I have covered all different angles of this story, including ones focusing on the educators and their lack of COLA, how lawmakers are responding and investigations into archived meetings. Most stories are linked to the previous, but chronological order can be found by going to this page, scrolling down and clicking to the fourth page back to find the first piece.
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