COLUMBUS (AP) — A battle is under way for the future of Ohio’s $94 billion teacher pension fund, as would-be reformers’ attempts to deliver long-promised benefits to retirees with the help of an aggressive investment firm touting an untested AI-driven trading strategy face intense scrutiny.

The eyes of Wall Street and the half-million members of the State Teachers Retirement System of Ohio are on the state as the drama unfolds. A special meeting has been called for Thursday of a board nearly paralyzed by infighting whose executive director is on long-term leave over misconduct allegations he denies.

Years of tension at the fund came to a head on May 8, when Republican Ohio Gov. Mike DeWine announced that he had come into possession of an anonymous 14-page memo and other documents containing “disturbing allegations” about the STRS board and was handing them over to authorities.

Republican Attorney General Dave Yost launched an investigation the next day into what he called the fund’s “susceptibility to a hostile takeover by private interests.” He followed up with a lawsuit seeking to unseat two reform-minded board members — Wade Steen and Rudy Fichtenbaum — for backing a plan to turn over $65 billion, or roughly 70% of STRS assets, to a fledgling investment firm called QED. The outfit is co-run by two people, one a former deputy Ohio treasurer, out of a condo in suburban Columbus.

“This isn’t monopoly money; it’s hard-earned income that belongs to teachers,” Yost said in launching his probe. “There is a responsibility to act in their best interests.”

The Ohio Retirement for Teachers Association, a retiree watchdog group, says Steen and Fichtenbaum have been unfairly targeted. The group defends reformers’ push for change as a fight against years of opaque management and greed.

Teachers, who are generally ineligible for Social Security and so rely heavily on the fund in retirement, are particularly upset at the dearth of cost-of-living adjustments and market losses that the fund has seen over the years, even as STRS investment professionals have collected large bonuses. They have called for more transparency into the fund’s investment and pay practices.

“We’ve been calling for an investigation for years,” said Robin Rayfield, the association’s executive director. “So our response to them would be, ‘Where you been?'”

Rayfield said public education in Ohio will be “fully politicized” if DeWine and Yost succeed in shutting down STRS reformers. He described it as the third leg of a stool that also includes approval of a universal school voucher program in last year’s state budget and the transfer of K-12 education oversight from Ohio’s independent state school board into DeWine’s Cabinet. An ongoing lawsuit challenges the latter as unconstitutional.

“Governor DeWine has done more to ruin public education than all the other governors combined,” he said.

The nearly $6 trillion U.S. public pension sector has increasingly swapped stocks for riskier actively-managed alternative investments, such as hedge funds and private equities, in recent years — a trend that David Draine, the Pew Charitable Trust’s principal researcher on public sector retirement systems, says demands the type of transparency that the Ohio reformers have sought.

“As public pensions are taking on both risky and complicated assets, it’s important that they’re being transparent about those investments: what the returns are on their performance, what they’re paying for them, and what the risks are,” he said.

However, detractors say putting the shadowy QED in charge of STRS investments brings even greater danger.

Aristotle Hutras, former director of the Ohio Retirement Study Council, a legislative oversight committee, believes the governor is rightly trying to protect STRS from reformers’ rosy AI-fueled visions for improving the fund, which he dubs “magical thinking.”

“STRS has survived a world war, a major depression, a major recession and a worldwide pandemic, and still paid benefits,” said Hutras, a Democrat. “This notion of QED, and essentially steering a contract, in my humble opinion, is the most serious threat to STRS’s solvency in the last 96 years.”

The fund’s then-board chair issued a statement after DeWine’s referral saying that STRS was cooperating, but reassuring beneficiaries that the fund was safe, secure, well-run and in “sound financial position.”

Among claims in the 14-page memo, whose murky origins one board member said should be investigated, is that QED’s Jonathan Tremmel approached STRS in 2020 with assertions that the fund was improperly calculating performance, benchmarks and investment costs. “He also claimed to have AI-based trading strategies that would fix STRS’s ‘problems,'” the memo said.

Leaders rejected Tremmel’s initial pitch because of QED’s lack of professional registrations, clients or track record. His business partner, Seth Metcalf, who served under former Republican Ohio Treasurer Josh Mandel, returned to STRS asking that QED be given a second look.

Around that time, the memo’s authors contend, Steen, Fichtenbaum and two other then-board members began raising almost identical questions about STRS performance to QED’s and started working behind the scenes to get an affiliated company, OhioAI, pension fund business. The metadata on some letters and memos showed they originated with Tremmel or Metcalf.

The Federal Trade Commission began cautioning businesses around that time to proceed cautiously with automated tools that might have biased or discriminatory impacts. Last year, the commission took its warnings further, putting companies on notice that false or unsubstantiated claims about what AI could do for their clients could lead to enforcement actions.

Neither Metcalf nor Tremmel returned calls seeking comment on their statements to STRS. In his lawsuit, Yost told the court, “The owner of this shell company continues to peddle to STRS a secretive and untested investment scheme while his own condominium is in foreclosure.” The attorney general accuses Steen and Fichtenbaum of “backdoor ties” to QED.

Steen denies Yost’s claims, including that $65 billion was ever on the table. He argues that reaction to his persistent questioning of STRS’s practices proves that he’s struck a nerve.

“He’s hiding behind litigation that’s defamatory, it’s not true,” Steen said after the board’s May 15 meeting. “I thought there was going to be a fair, impartial investigation. I guess this might be the fastest investigation ever done in Ohio history. But we’re going to defend this vigorously. None of it’s true. It’s all false.”

DeWine called it a “huge red flag” when Aon, a nationally respected consulting firm that had been enlisted to help address management and fiscal performance issues, abruptly exited its contract with the pension fund earlier this month.

“The unstated implication is that the governance issues at STRS are so concerning that Aon could not continue its contract in good faith,” DeWine said in a statement. A spokesperson for Aon declined comment.

STRS reformers have not backed down. Now in control of a majority of votes on STRS’s 11-member board, they pushed ahead during the board’s May meeting to oust rival leadership and elect Fichtenbaum, an emeritus Wright State University economics professor, as board chair.

Many of the retired teachers in attendance applauded after the coup. Nearby was a poster with a different STRS acronym: “Stealing Teachers’ Retirement Savings.”

“It’s needed to happen for years,” said Lee Ann Baughman, 82, who taught elementary school in suburban Columbus for 32 years. “It’s been hard for these retirees. A lot of them have a part-time job, and they’re old, and it’s been very hurtful not to get what they were promised.”