H&R Block Faces $250 Million Fraud Suit

March 15, 2006 — -- New York state sued the nation's largest tax-preparing company today, alleging that H&R Block had fraudulently pushed customers to buy a retirement account that actually lost money for its buyers because of hidden fees.

The $250 million fraud suit alleges H&R Block advised clients to buy the Express IRA, which was "unsuitable, fraudulently marketed, poorly performing and fee-ridden."

The company immediately issued a statement denying the allegations and vowing to "fight vigorously to defend the Express IRA product."

New York State Attorney General Eliot Spitzer, who is running for governor of New York, said Block's conduct "was particularly appalling because many of those hardest hit were working families who struggled to save."

Spitzer's office said that over the last four years, Block had opened more than half a million Express IRA accounts nationwide for its customers. Officials said customers were told that the IRA paid "great rates" and was "a better way to save." But Spitzer's office said that 85 percent of the customers had paid H&R Block more in fees than they had earned in interest. The attorney general said more than 150,000 customers ultimately had closed the accounts, incurring additional fees and nearly $6 million in tax penalties.

Related Stories

What witnesses said about Trump, classified docs

• Apr 24, 4:58 PM

Airlines must give refunds for canceled flights

• Apr 24, 11:06 AM

OJ Simpson dies at 76

• Apr 11, 6:32 PM

H&R Block chairman Max Ernst said he still believed in the Express IRA. He said that at a time when savings rates had declined, "we've helped 596,000 of our clients begin saving for their future." Ernst added that more than 40 percent of those clients had never saved before.

The lawsuit said the only investment option Block had offered was a money market account with a low interest rate. Spitzer said the company had failed to disclose the real size of the fees that eat away the instrument's low interest rate.

The attorney general's office said it began the investigation last year after receiving information from an H&R Block employee. Spitzer said some of the firm's employees had refused to push the product.