Does Oklahoma's Tobacco Settlement Endowment Trust (TSET) Board of Investors have to follow the prudent investor rule, and can it sue companies it has invested in?
Plain-English summary
Oklahoma Attorney General Gentner Drummond answered two questions about how the Board of Investors that manages the Tobacco Settlement Endowment Trust (TSET) Fund must handle its money.
First, the Board has to follow the prudent investor rule, the standard that applies to every Oklahoma trustee handling trust money. That comes from two sources: Oklahoma's Uniform Prudent Investor Act, which binds trustees generally, and the TSET Act itself, which copies the prudent-investor language almost word for word and applies it directly to the Board.
Second, the Board has the power to sue companies it has invested in when bringing a stockholder action is needed to protect the value of the TSET Fund. That authority flows from the Board's basic role as trustee: a trustee has both the right and the duty to use the legal tools that come with owning stock (including litigation) to defend the assets it is managing.
The AG also flagged, without deciding, that the Oklahoma Supreme Court's 2026 decision in Keenan v. Russ (which struck down a divestment mandate on state pension funds) likely affects how the Board can use politically-driven investment screens. The TSET Fund is governed by the same investment rules as state retirement funds, so the Keenan reasoning would probably carry over.
What this means for you
If you sit on the TSET Board of Investors
Your investment decisions are reviewed against the same legal standard a private trustee faces. Specifically:
- You must "exercise reasonable care, skill, and caution" (60 O.S. § 175.62(A)).
- You must evaluate each investment in the context of the whole portfolio, not in isolation (60 O.S. § 175.62(B)).
- You must diversify unless special circumstances make it clearly prudent not to (60 O.S. § 175.63; 62 O.S. § 2306(A)).
- You owe a duty of loyalty to manage the assets "solely in the interest" of beneficiaries (60 O.S. § 175.65), here, the people of Oklahoma.
When you bring a stockholder action, this Opinion is the formal authority you can cite for that power. Document the necessity and propriety of the action under the trust's circumstances.
The AG also signals that ESG-style or other policy-driven screens should be approached carefully, "the Board would be wise to ensure its investment decisions focus solely on maximizing return," consistent with the prudent-investor factors. Read in light of Keenan, a screen that creates a "dual purpose" for investments is at constitutional risk.
If you're a TSET-Fund grant recipient or beneficiary
The Board owes you (as a member of the beneficiary public) a fiduciary duty to manage these assets prudently. If you believe the Board is acting outside the prudent-investor framework, this Opinion lays out the standards that govern its conduct.
If you're a state legislator considering legislation directing TSET investments
Keenan v. Russ is the live constitutional limit. Article XXIII, § 12 of the Oklahoma Constitution requires state-pension assets to be invested solely for participants' benefit, and Article X, § 40(C) hooks the TSET Fund to the same legal regime. Legislation creating a "dual purpose" for TSET investment decisions (an investment goal plus a policy goal) is likely to face the same fate as the Energy Discrimination Elimination Act provisions invalidated in Keenan.
If you advise public-trust trustees in Oklahoma
This Opinion confirms the dual-source application of the prudent-investor rule for the TSET Fund (Prudent Investor Act plus TSET Act). The same dual-source structure applies to several other Oklahoma public trusts whose enabling statutes incorporate prudent-investor language. The Opinion's footnote 1 also reaffirms the duty of loyalty owed by public-trust fiduciaries, useful when reviewing board-conflict and policy-screen questions.
If you're a journalist or citizen following TSET decisions
The legal benchmark for evaluating Board choices is now clearly stated: prudent investor standard, with the portfolio (not the individual investment) as the unit of analysis. A specific investment is not "imprudent" in the abstract; it is evaluated in light of the whole portfolio and the risks the Board accepted at the time of the decision.
Common questions
Q: What is the "prudent investor rule" in plain language?
A: A trustee has to act with the care, skill, and caution that a reasonable investor would use when handling someone else's money. The trustee is judged on the portfolio as a whole, not on any single investment, and on what was knowable at the time the decision was made.
Q: Does this Opinion say a specific TSET investment was right or wrong?
A: No. The AG explicitly declined to evaluate any particular decision. The Opinion sets the legal standard the Board must follow; whether a given choice met that standard is a fact-specific question.
Q: Who actually sits on the TSET Board of Investors?
A: Five members: the State Treasurer (chair) plus one appointee each by the Governor, Speaker of the House, President Pro Tempore of the Senate, and State Auditor and Inspector. The structure is set in Article X, § 40(C) of the Oklahoma Constitution.
Q: Can the Board hire outside investment managers?
A: Yes. The TSET Act expressly authorizes the Board to retain qualified investment managers and a custodial bank (62 O.S. § 2306(B)–(C)). But the Board cannot delegate its fiduciary duty itself, it still has to set policy and supervise.
Q: What kinds of stockholder actions can the Board bring?
A: Anything a stockholder can normally do when an investment is at risk: derivative suits, breach-of-fiduciary-duty claims against company directors, securities-fraud claims if there has been misrepresentation. The AG cites Powell v. Ocwen Fin. Corp. and In re Citigroup as recent examples of public-fund trustees doing exactly this.
Q: How does Keenan v. Russ affect this Opinion?
A: Keenan struck down a 2022 statute that forced state pension plans to divest from asset managers the Treasurer flagged as oil-and-gas boycotters. The court called that a "dual purpose" for investment decisions and held it conflicted with the constitutional requirement to invest solely for participants' benefit. Because the TSET Fund is subject to the same investment regime as state-retirement funds, the AG signaled that a similar mandate for TSET would likely fail too.
Q: Does this Opinion let the Board use ESG criteria?
A: It does not bless or forbid ESG. It does emphasize that any non-financial criterion has to be secondary to the primary duty of seeking prudent risk-adjusted return for beneficiaries. The footnote citation to Schanzenbach & Sitkoff (Stan. L. Rev., 2020) signals an alignment with the conservative academic position: collateral benefits are allowable only when the financial decision stands on its own.
Background and statutory framework
In 1998 Oklahoma joined the multi-state Master Settlement Agreement with the major tobacco companies, securing a stream of annual payments tied to tobacco-related public-health costs. In 2000 the voters approved State Question 692, which created the TSET Fund as a constitutional endowment (Okla. Const. art. X, § 40). The settlement payments flow into the Fund's corpus; only earnings are spent, and they are directed to health, well-being, and anti-smoking programs.
The Board of Investors handles the corpus. The Legislature followed up in 2001 with the TSET Act (62 O.S. §§ 2301–2310), which spells out the Board's duties, allows it to hire investment managers, and requires annual certification of earnings available for expenditure.
The Opinion stacks two regimes on top of each other to reach its answer:
- The Prudent Investor Act (60 O.S. §§ 175.60–175.72). Default Oklahoma trust law. The Board is a trustee, so it applies directly.
- The TSET Act. Its language at § 2306(A) tracks the Prudent Investor Act's standard-of-care formula nearly verbatim, and adds diversification and additional decision factors at § 2307(C).
Because the two sources agree, the AG concluded the rule binds the Board "both as a matter of Oklahoma trust law and the statutes governing the TSET Fund." For the stockholder-action question, the Opinion relied on general trust-law authority (60 O.S. § 175.14, § 175.24(A)(5), and First Nat'l Bank of Wichita Falls v. Stricklin) plus secondary sources (Bogert; CJS Trusts) to confirm a trustee's inherent power to bring litigation to protect trust assets.
Citations and references
Oklahoma Constitution:
- Okla. Const. art. X, § 40 (TSET Fund creation and governance)
- Okla. Const. art. XXIII, § 12 (Public retirement systems, exclusive-benefit rule)
Statutes:
- 62 O.S.2021, §§ 2301–2310 (TSET Act)
- 60 O.S.2021, §§ 175.60–175.72 (Oklahoma Uniform Prudent Investor Act)
- 60 O.S.2021, § 175.14 (Voting shares held in trust)
- 60 O.S.Supp.2024, § 175.24(A)(5) (Trustee power to compromise claims)
Cases:
- Tobacco Settlement Endowment Tr. Fund v. Stitt, 2026 OK 1, 583 P.3d 280
- Keenan v. Russ, 2026 OK 20 (Energy Discrimination Elimination Act, pension fund)
- Multiple Injury Tr. Fund v. Wade, 2008 OK 15, 180 P.3d 1205
- First Nat'l Bank of Wichita Falls v. Stricklin, 1959 OK 208, 347 P.2d 652
- In re Citigroup Inc. S'holder Derivative Litig., 964 A.2d 106 (Del. Ch. 2009)
- Powell v. Ocwen Fin. Corp., 2026 WL 1084825 (2d Cir. Apr. 22, 2026)
Prior AG opinions:
- 2023 OK AG 5
- 2011 OK AG 11
Source
- Landing page: https://oklahoma.gov/oag/opinions/ag-opinions/2026/7.html
- Original PDF: https://oklahoma.gov/content/dam/ok/en/oag/opinions/ag-opinions/2026/A.G. Opinion 2026-7.pdf
Original opinion text
GENTNER DRUMMOND
ATTORNEY GENERAL
ATTORNEY GENERAL OPINION
2026-7
The Honorable Andy Fugate
Oklahoma House of Representatives, District 94
2300 N. Lincoln Boulevard, Room 545
Oklahoma City, OK 73105
May 8, 2026
Dear Representative Fugate:
This office has received your request for an Attorney General Opinion in which you ask,
in effect, the following questions:
1. Is the Board of Investors ("Board") of the Tobacco Settlement Endowment
Trust ("TSET") Fund required to follow the prudent investor rule?
2. Does the Board have the authority to initiate stockholder action against
companies in which the TSET Fund has invested?
I.
SUMMARY
The answer to both questions is yes. As trustee for the TSET Fund, the Board is bound by
Oklahoma trust law, as well as statutes specifically governing the TSET Fund, to manage the TSET
Fund assets in accordance with the prudent investor rule. Likewise, the Board's duty to manage
the assets as trustee includes taking action as a stockholder, when necessary and appropriate, to
protect the value of investments held in the TSET Fund.
II.
BACKGROUND
In 1998, the State of Oklahoma participated in a landmark multistate settlement with the tobacco
industry that provided for a series of annual payments to the State to address ongoing health costs
associated with tobacco use. See Tobacco Settlement Endowment Tr. Fund v. Stitt, 2026 OK 1, ¶
2, 583 P.3d 280, 284; 2023 OK AG 5, ¶ 1. In 2000, Oklahoma voters approved State Question 692
("SQ 692"), now Article X, Section 40 of the Oklahoma Constitution, which created the TSET
Fund to hold and invest proceeds from the 1998 settlement and future tobacco settlements. See
2011 OK AG 11, ¶ 1. Earnings from the TSET Fund are to be directed toward health, well-being,
and anti-smoking initiatives. OKLA. CONST. art. X, § 40(E). To generate these earnings, SQ 692
created the Board and tasked it with "the duty of investing monies in the trust fund, subject to
restrictions and limitations provided by law for and in accordance with laws applicable to the
investment of monies in state retirement funds." Id. § 40(C). The five-member Board is chaired by
the State Treasurer and includes one appointee each by the Governor, Speaker of the House of
Representatives, President Pro Tempore of the Senate, and State Auditor and Inspector. Id.
In 2001, the Legislature passed the Tobacco Settlement Endowment Trust Fund Act ("TSET Act"),
62 O.S.2021, §§ 2301–2310, to, among other things, flesh out the Board's role established by SQ
692. The TSET Act provides additional direction for Board members in "discharg[ing] their duties
as trustees of the [TSET] Fund," and authorizes the Board to retain qualified investment managers
to administer the TSET Fund's assets and a custodial bank to hold securities in the TSET portfolio.
Id. § 2306(A)–(C). Each year, based on the consideration of statutory factors, the Board certifies
the TSET Fund's earnings from the prior fiscal year to be expended on programs described in
article X, section 40 of the Oklahoma Constitution. Id. § 2307.
III.
DISCUSSION
You have asked two questions regarding (1) the standards governing the Board's management of
TSET Fund investments, and (2) the authority of the Board to initiate stockholder actions against
companies in which the TSET Fund has invested.
A. As trustees, and per the plain terms of the TSET Act, the Board must invest and
manage monies in the TSET Fund in accordance with the prudent investor rule.
Originating at common law, the "prudent investor rule" requires a trustee to exercise a reasonable
degree of care, skill, and caution in making investment decisions regarding trust assets. See
GEORGE G. BOGERT, ET AL., BOGERT'S THE LAW OF TRUSTS AND TRUSTEES § 612 (May 2025
Update). The rule is now codified in most states, including in Oklahoma as part of the Oklahoma
Uniform Prudent Investor Act, 60 O.S.2021, §§ 175.60–175.72 ("Prudent Investor Act"). Thus, in
Oklahoma, a trustee is statutorily bound to "invest and manage trust assets as a prudent investor
would, by considering the purposes, terms, distribution requirements, and other circumstances of
the trust," and, in so doing, the trustee must "exercise reasonable care, skill, and caution." Id. §
175.62(A). At the same time, investment decisions as to "individual assets must be evaluated not
in isolation, but in the context of the trust portfolio as a whole and as a part of an overall investment
strategy having risk and return objectives reasonably suited to the trust." Id. § 175.62(B); see also
RESTATEMENT (THIRD) OF TRUSTS: GENERAL STANDARD OF PRUDENT INVESTMENT § 90,
cmt. e (2007) ("In short, the prudent investor rule, despite its requirement of caution, does not
classify specific investments or courses of action as prudent or imprudent in the abstract.").
When the Legislature codified the powers and duties of the Board in 2001, it employed language
nearly identical to the prudent investor rule. For example, the TSET Act requires Board members
"to discharge their duties as trustees … [w]ith the care, skill, prudence, and diligence, under the
circumstances then prevailing, that a prudent person acting in a like capacity and familiar with
such matters would use in the conduct of an enterprise of a like character with like aims[.]" 62
O.S.2021, § 2306(A). In addition, the Board must "diversify[] the investments in the trust fund so
as to minimize the risk of large losses, unless, under the circumstances, it is clearly prudent not to
do so[.]" Id; see also id. § 2307(C) (setting additional parameters for Board decisions).
It is plain from the foregoing that the Board is bound in its management of the TSET Fund to
follow the prudent investor rule. See generally Multiple Injury Tr. Fund v. Wade, 2008 OK 15, ¶
23, 180 P.3d 1205, 1212 ("If the statutory language is plain and its meaning is clear, we must apply
the statute as written."). The rule applies both (1) because the Board members are trustees subject
to the Prudent Investor Act, and (2) because the TSET Act itself specifically requires it. However,
the question of whether any particular investment decision is consistent with the standards required
by the Prudent Investor Act and/or the TSET Act is beyond the scope of this Opinion. A trustee's
"[c]ompliance with the prudent investor rule is determined in light of the facts and circumstances
existing at the time of a trustee's decision or action[.]" 60 O.S.2021, § 175.68.
B. As trustee of the TSET Fund, the Board has legal authority to initiate stockholder
actions against individual companies in which TSET Fund monies are invested.
The answer to your second question is related to the first. Specifically, it is the Board, as trustee
of the TSET Fund, that holds direct responsibility for managing the TSET Fund's investments.
OKLA. CONST. art. X, § 40(C). While the Board may rely on the assistance of investment managers,
it is the Board's duty to establish the TSET Fund's investment and management policies and
guidelines. 62 O.S.2021, § 2306(B), (E); see also 60 O.S.2021, § 175.69 (outlining a trustee's
authority to delegate investment and management responsibilities under the Prudent Investor Act).
The Board's duty to invest and manage the assets of the TSET Fund includes exercising the rights
incident to ownership of stock held in the TSET Fund. For example, under Oklahoma law, a trustee
may vote shares held in trust, even if using an investment manager as a proxy. See 60 O.S.2021, §
175.14. Likewise, it is generally accepted that a trustee's duty to protect trust assets includes, where
appropriate, bringing legal action. See BOGERT'S THE LAW OF TRUSTS AND TRUSTEES § 592
("Where circumstances warrant, a trustee has the power to bring any civil action necessary to
protect or administer the trust."); see also 60 O.S.Supp.2024, § 175.24(A)(5) (Unless otherwise
limited by the trust instrument, "the trustee of an express trust is authorized … [t]o compromise,
contest, arbitrate, or settle any and all claims of or against the trust estate[.]"), First Nat'l Bank of
Wichita Falls v. Stricklin, 1959 OK 208, ¶ 10, 347 P.2d 652, 655 ("A trustee has the right and duty
to employ counsel when necessary to the proper administration, preservation, and execution of the
trust and the prosecution and defense of actions[.]" (quoting 90 C.J.S. Trusts § 284)).
In sum, the Board has both the authority and the obligation to manage and protect the TSET Fund's
assets, including initiating stockholder action when necessary and appropriate. The necessity and
propriety of such action will depend on the circumstances of the particular investment.
It is, therefore, the official Opinion of the Attorney General that:
1. In managing and investing the assets of the Tobacco Settlement Endowment Trust
("TSET") Fund, the Board of Investors ("Board") is required to follow the prudent
investor rule, both as a matter of Oklahoma trust law and the statutes governing the
TSET Fund.
2. As trustee of the TSET Fund, the Board has the authority to initiate stockholder
action against companies in which the Board has invested monies from the TSET
Fund.
GENTNER DRUMMOND
ATTORNEY GENERAL OF OKLAHOMA
ETHAN SHANER
DEPUTY GENERAL COUNSEL