The Economy

Spitzer Turns Up the Heat on H&R Block

''Senior management steam-rolled conscientious employees who objected to the fact that clients were losing money,'' asserts the New York State Atto...
Stephen TaubMay 8, 2006

New York State Attorney General Eliot Spitzer filed an amended lawsuit against tax preparer H&R Block, citing additional evidence of fraudulent marketing of individual retirement accounts and alleging that the company penalized employees who wouldn’t play along.

“In addition to designing a flawed product with hidden fees and marketing it fraudulently to unsuspecting customers,” said Spitzer, in a statement, “senior management steam-rolled conscientious employees who objected to the fact that clients were losing money.”

In his original complaint, filed on March 15, Spitzer charged H&R Block with steering hundreds of thousands of customers into IRAs with hidden fees and low interest rates. The complaint reportedly cited E-mails in which the company’s own employees characterized its Express IRA as a bad investment that they could not in good conscience recommend to clients.

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According to Spitzer’s announcement on Monday, newly obtained evidence includes statements by former H&R Block employees that managers disregarded their complaints about misleading marketing of the IRA; that they instructed tax preparers “to make a positive presentation” of the IRA and “avoid mention of negatives”; and that they told tax preparers to sell more IRAs or “there’s the door.”

According to the attorney general, H&R Block introduced the Express IRA in 2002, claiming that it “paid great rates” and was “a better way to save”; he also maintained that at times, it paid less than 1 percent interest, and that 85 percent of enrollees paid more in fees than they earned in interest.

In a statement, H&R Block asserted that it looks forward to the Attorney General’s office presenting its case in court rather than through the press. “We continue to have complete confidence that our company and our Express IRA product will be fully vindicated once we’ve had our day in court,” it added. “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.”