Spitzer Says H&R; Block Urged IRA Fraud

ALBANY, N.Y. —  New York Atty. Gen. Eliot Spitzer on Monday said he had evidence that H&R; Block Inc. executives not only knew they were pushing customers to buy money-losing retirement account plans, but penalized employees who refused to recommend them.

Spitzer amended his March suit against the giant tax-preparation company with copies of e-mails that he said showed managers disregarded complaints from tax preparers about misleading marketing of the retirement product called Express IRA. The internal documents also showed that tax preparers were told “sell more IRAs” or “there’s the door.”

The company said in a statement that it would be “vindicated once we’ve had our day in court.”

“The company looks forward to the attorney general’s office presenting its case in court rather than through the press,” the Kansas City, Mo.-based company said. “That the attorney general’s office has chosen to ignore the facts, rely on information taken out of context, and continue to attack our company and our product seems tailored to objectives other than the merits of this case.”

In March, Spitzer filed a $250-million fraud suit accusing the nation’s largest tax-preparation service of steering more than 500,000 customers into a money-losing retirement account plan. Spitzer said Block advised clients to buy an “unsuitable, fraudulently marketed, poorly performing, fee-ridden ‘retirement vehicle’ called the Express IRA,” an account that actually shrinks over time.

Court papers say the amount of money in the retirement account decreases because the only investment option is a money market account with an interest rate so low that it does not cover the fees -- “fees that H&R; Block fails to adequately disclose.”

H&R; Block in March issued an immediate and strong reply saying the company would “fight vigorously to defend the Express IRA product and ensure it remains available to our many clients who rely on it as a helpful savings option.”

Spitzer said that H&R; Block opened more than half a million Express IRA accounts in the last four years. He said 85% of customers who opened the accounts paid H&R; Block more in fees than they earned in interest.

More than 150,000 customers closed their accounts, incurring additional undisclosed fees and almost $6 million in tax penalties, Spitzer said.

H&R; Block shares fell 23 cents, or 1%, to $23.22.