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: the Oklahoma 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.

In footnote 3, the AG discusses Keenan v. Russ, which found a constitutional conflict in a divestment mandate applied to a state retirement system. The opinion says the court's reasoning would likely apply if a similar issue arose for the TSET Fund; it does not decide any TSET investment dispute.

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.

The opinion recognizes the Board's authority to initiate stockholder action when necessary and appropriate to protect the TSET Fund. Whether an action meets that standard depends on the particular investment.

Footnote 3 discusses the tension between policy-driven investment mandates and a trustee's duty of loyalty. It says the Board "would be wise to ensure its investment decisions focus solely on maximizing return to the TSET Fund" based on the governing legal factors. The footnote discusses Keenan's "dual purpose" reasoning but does not decide the validity of a TSET investment screen.

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

Footnote 3 explains that Keenan v. Russ found a constitutional conflict when a divestment mandate applied to a state pension system. Article X, § 40(C) subjects TSET investments to laws applicable to state retirement funds. The AG says Keenan's reasoning would likely apply if a similar issue arose for TSET; the opinion does not decide the validity of any TSET mandate.

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). Footnote 1 also describes the Board's duty of loyalty to the trust beneficiaries, whom it identifies as the people of Oklahoma.

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 statute expressly authorizes the Board to retain qualified investment managers and a custodial bank (62 O.S. § 2306(B)–(C)). The opinion says the Board remains responsible for establishing the Fund's investment and management policies and guidelines.

Q: What kinds of stockholder actions can the Board bring?
A: The opinion recognizes authority to initiate stockholder action when necessary and appropriate to protect a TSET investment. Its footnote cites one fiduciary-duty suit brought by public pension trustees and one shareholder derivative suit involving public retirement and pension funds. It does not prescribe which claim the Board should bring in a particular case.

Q: How does Keenan v. Russ affect this Opinion?
A: In footnote 3, the AG explains that Keenan found a constitutional conflict when a divestment mandate applied to a state retirement system. Because TSET investments are subject to laws governing state retirement fund investments, the opinion says Keenan's reasoning would likely apply if a similar issue arose for TSET. It does not decide the validity of a TSET mandate.

Q: Does this Opinion let the Board use ESG criteria?
A: The opinion does not decide whether a particular ESG criterion is permissible. Footnote 3 cites scholarship arguing that a trustee's socially minded investment decisions are permissible only when their collateral effect is secondary to a prudent balance of risk, return, and diversification. The AG advises the Board to focus solely on maximizing return under the governing law.

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 opinion says the Fund holds and invests tobacco settlement proceeds, and its earnings 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:

1. The Prudent Investor Act (60 O.S. §§ 175.60–175.72). Default Oklahoma trust law. The Board is a trustee, so it applies directly.
2. 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
May 8, 2026
Oklahoma House of Representatives, District 94
2300 N. Lincoln Boulevard, Room 545
Oklahoma City, OK 73105

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

313 N.E. 21ST STREET • OKLAHOMA CITY, OK 73105 • (405) 521-3921 • FAX: (405) 521-6246
Representative Andy Fugate
A.G. Opinion
Oklahoma House of Representatives
Page 2

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, 1 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). 2 At the same time, investment decisions as to “individual assets must be evaluated not 1
Your question, and therefore this Opinion, focuses narrowly on the prudent investor rule. However, it is important to acknowledge the Board’s broader duties as trustee overseeing the TSET Fund. Under Oklahoma law, a trustee is bound by a duty of loyalty to the trust beneficiaries—here, the people of Oklahoma—to “invest and manage the trust assets solely in [their] interest.” 60 O.S.2021, § 175.65 (emphasis added); see also RESTATEMENT (THIRD) OF TRUSTS: DUTY OF LOYALTY § 78, cmt. b (2007) (“The trustee owes a fiduciary duty to administer the affairs of the trust solely in the interests of the beneficiaries, and to exclude from consideration his own advantages and the welfare of third persons.”). In addition, a trustee owes a duty of prudence in administering the trust, which requires the exercise of “reasonable care, skill, and caution.” 60 O.S.2021, § 175.62(A); RESTATEMENT (THIRD) OF TRUSTS: DUTY OF PRUDENCE § 77, cmt. b (2007). As discussed herein, this duty as it pertains specifically to a trustee’s investment activities has been expanded upon, refined, and codified as the “prudent investor rule.” 2
The Prudent Investor Act also lists specific factors the trustee must consider in investing and managing trust assets, including general economic conditions, expected return, tax consequences, and an asset’s special relationship or value to the purposes of the trust. 60 O.S.2021, § 175.62(C). A trustee must diversify the trust’s investments unless “special circumstances” dictate that the trust’s purpose is “better served without diversifying.” Id. § 175.63.
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A.G. Opinion
Oklahoma House of Representatives
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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) (emphasis added); 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. 3

3
While it does not bear directly on your question, the Oklahoma Supreme Court’s recent decision in Keenan v. Russ, 2026 OK 20, warrants a brief mention here. In Keenan, the court reviewed the constitutionality of the Energy Discrimination Elimination Act of 2022 (“Act”) as applied to the Oklahoma Public Employees Retirement System. The Act directs state pension plans to exit investments with any asset manager deemed by the State Treasurer to have boycotted the oil and gas sector. Id. ¶¶ 55-57. The question was whether this divestment mandate conflicts with the constitutional requirement that Oklahoma pension funds be invested for the sole purpose of paying benefits of plan participants. Id. ¶¶ 49-50 (citing OKLA. CONST. art. XXIII, § 12). The Court held that it did, reasoning that the Act “create[ed] a ‘dual purpose’ for investment decisions made by [an agency] administering a public retirement system as opposed to the ‘exclusive purpose’ [it] must follow due to the express language” of the constitution. Id. ¶ 60.

The court’s analysis in Keenan is relevant to this discussion for two reasons. First, the constitution states explicitly that TSET Fund investments are subject to the laws governing “the investment of monies in state retirement funds.” OKLA. CONST. art. X, § 40(C). As a result, while Keenan considered only the Act’s application to a particular pension fund, if a similar issue arose with regard to the TSET Fund, it seems likely that the court’s reasoning in Keenan would apply. Second, the constitutional conflict the court grappled with in Keenan parallels the long-recognized tension between policy-driven investing mandates and a trustee’s fiduciary duty to manage trust assets solely in the interest of the beneficiary. See note 1, supra. Put simply, “[t]he duty of prudent investing…reinforces the duty of loyalty in forbidding the trustee to invest for any object other than the highest return consistent with the preferred level of portfolio risk.” John H. Langbein & Richard A. Posner, Social Investing and the Law of Trusts, 79 MICH. L. REV. 72, 98 (1980); Max M. Schanzenbach & Robert H. Sitkoff, Reconciling Fiduciary Duty and Social Conscience: The Law and Economics of ESG Investing by a Trustee, 72 STAN. L. REV. 381 (Feb. 2020) (arguing that a trustee’s socially- minded investment decisions are permissible only where the collateral effect of such decisions is secondary to the primary motivation of seeking a prudent balance of risk, return, and diversification of the trust portfolio). Accordingly, the Board would be wise to ensure its investment decisions focus solely on maximizing return to the TSET Fund based on the factors outlined in the Prudent Investor Act, the TSET Act, and the Oklahoma Constitution.
Representative Andy Fugate
A.G. Opinion
Oklahoma House of Representatives
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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)). 4

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.

4
Indeed, it is often the managers of pension or other public trust funds that initiate stockholder litigation to protect the assets they manage. See, e.g, Powell v. Ocwen Fin. Corp., et al., --- F.4th ---, 2026 WL 1084825 (2d Cir. Apr. 22, 2026) (lawsuit brought by trustees of public pension funds for breach of fiduciary duty regarding equity investments), In re Citigroup Inc. S’holder Derivative Litig., 964 A.2d 106 (Del. Ch. 2009) (public retirement and pension funds included as plaintiffs in shareholder derivative litigation).
Representative Andy Fugate
A.G. Opinion
Oklahoma House of Representatives
Page 5

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