By Edward Siedle
In June 2021, when the State Teachers Retirement System of Ohio was facing intense criticism from retired teachers for lack of transparency regarding its riskiest investments, State Auditor Keith Faber came to the pension staff’s rescue—somehow granting STRS Ohio the auditor’s Highest Achievement in Open and Transparent Government Award. In a stunning turn of events, Faber yesterday finally released—coincidentally after winning re-election—the findings of his office’s year-long Special Investigation of STRS which recommended the pension end secrecy regarding investments and embrace full transparency. Politics and flip-flopping aside, Faber is the first and only state auditor to embrace full transparency regarding public pension investments. Whether STRS Ohio and the other four Ohio massive state pensions—all of which are equally secretive—will comply with Faber’s transparency recommendations remains to be seen. Wall Street has a lot to lose if public pensions—often regarded as the dumbest investors in the room—are forced to expose their sketchiest dealings to public scrutiny.
Last year, I conducted a preliminary forensic investigation of STRS Ohio commissioned by tens of thousands of members of the Ohio Retired Teachers Association. The damning findings of the investigation titled “The High Cost of Secrecy: Preliminary Findings of Forensic Investigation of State Teachers Retirement System of Ohio were released to the public in June 2021. The findings included that the pension had long abandoned transparency regarding its investments. While regulators like my former employer, the U.S. Securities and Exchange Commission, regularly advise investors to “read the prospectus before you invest,” STRS Ohio has long refused to provide pension participants with prospectuses and other documents related to their retirement savings.
It’s their money but teachers are not allowed to see how its invested.
Most disturbing, not a single prospectus or offering document required to be provided to all investors under our nation’s securities laws was provided in response to our public records requests. As a result of the extensive denials of important public records requests, it is impossible for STRS stakeholders to evaluate the investment strategies, performance, fees, risks, and conflicts of interest related to the pension’s investment portfolio. Accordingly, on May 21, 2021, we filed a complaint for writ mandamus with the Supreme Court of Ohio seeking certain STRS public records we had been denied.
For reasons that can only be political, within weeks of the issuance of the ORTA-commissioned forensic investigation chastising the pension for a profound lack of transparency, Ohio Auditor Keith Faber somehow granted STRS Ohio its Highest Achievement in Open and Transparent Government Award for fiscal 2021.
Evidently, Faber either did not read the damning findings in our report issued early June 2021 (and was not aware of our public records lawsuits filed in May, 2021) before issuing his highest transparency award to the pension for 2021, or disagreed—at that moment in time—that withholding fundamental investment information regarding tens of billions in pension assets from public scrutiny was a serious transparency concern.
Months later, in October 2021, Faber informed STRS that his office was launching a Special Audit of the pension after receiving numerous complaints, following the release of the findings of the forensic investigation commissioned by Ohio Retired Teachers Association. Again, for reasons that can only be political, the investigation by Faber’s staff (who confided with me that they had no pension experience) took over a year to complete. While Faber publicly announced before his re-election that he had “serious concerns” and was “aggressively” pursuing the complaints he received, his office waited until after the election to release its findings.
In a stunning turn of events, Faber yesterday finally released the findings of his office’s year-long Special Investigation of STRS which recommended the pension end secrecy regarding its investments and embrace full transparency. While many of the other findings in Faber’s report reflect a poor understanding of complex pension practices—and clearly his inexperienced staff was coached by STRS’s lavishly compensated investment staff and its richly paid Wall Street “experts”—Faber seemingly grasped the primacy of transparency.
As I emphasize in my book Who Stole My Pension?, with full transparency all negligence, mismanagement, fiduciary breaches, abusive industry practices and violations of law will be exposed and can be addressed. As I advised his staff, in response to their question, “Did I find any evidence of fraud or criminal activity,” I admitted I found none. Why?
Because I was denied access to any of the documents which are necessary to prove wrongdoing.
I even offered to assist his staff in reviewing any of the key investment documents I had been denied in my investigation which his office might have been provided by the pension—had they even asked. After being told they would check with their lawyers, I heard nothing. So, it was hardly surprising or persuasive to me when Faber announced he found no evidence of fraud, illegal acts or data manipulation.
Politics and flip-flopping aside, Faber is the first and only state auditor to recommend an end to secrecy and embrace full transparency regarding public pension investments. That’s a huge win for Ohio teachers—a result that only came about due to their efforts to expose mismanagement at the pension and the inexcusable failure of the Ohio Retirement Study Council (which is supposed to provide legislative oversight of state pensions) to commission fiduciary and actuarial audits within the statutorily-mandated periods.
Whether STRS Ohio and the other four Ohio massive state pensions—which are equally secretive—will comply with Faber’s transparency recommendations remains to be seen.
Wall Street has a lot to lose if public pensions—often regarded as the dumbest investors in the room—are forced to expose their sketchiest dealings to public scrutiny. If other state auditors follow Faber’s lead, the era of secrecy at our nation’s public pensions may be coming to an end.
