Spitzer Sues H&R Block for IRA Fraud

New York State Attorney General Eliot Spitzer has decided H&R Block took advantage of its customers with its Express IRA. He is suing for $250 million on behalf of those he claims were defrauded, plus refunds. He is also facing a primary challenge for the gubernatorial nomination of New York’s Democrats from Nassau County Executive Tom Suozzi. Happenstance is Mr. Spitzer’s friend.

Just as Americans are beginning to worry about the April 15 (actually 17th this year as the 15th is a Saturday) filing deadline for their taxes, Mr. Spitzer has targeted the nation’s largest tax preparation firm. This is not the first time H&R Block has been in trouble with the law. H&R Block, along with HSBC Financial Services, settled a suit last year for its refund anticipation loans, where interest rates often exceeded 100%.

According to Forbes, the suit alleges that company “failed to adequately disclose fees related to its Express IRA product to its customers, failed to warn that the interest paid would not cover the fees in certain instances, and misleadingly described the interest rates as ‘great,’ when they were at times less than one percent annually.”

Mr. Spitzer’s office notes a few cases out of the 500,000 it says were virtually guaranteed to lose money (indeed, it claims 85% of the Express IRA accountholders lost money). An anonymous 32-year-old from Albany, NY, opened an Express IRA account in 2002 with the minimum contribution of $300. The account earned $10.29 in interest over the past four years; the account holder paid $45 in fees over that same period of time. “Had people been told about the fees that were extracted year after year, it is our belief that those investors would have made a fundamentally different choice about whether or not to open these accounts,” Mr. Spitzer said.

H&R Block has a lot of explaining to do, especially since CNN got hold of an e-mail in which the AG’s office offered to settle the case. Management is unrepentant. “Make no mistake -- we believe in the Express IRA product and are proud of the opportunities it presents for our client,” said a statement from H&R Block Chairman and CEO Mark A. Ernst. One wonders if he has such an account himself.

Meanwhile, Tom Suozzi has taken bankrupt Nassau County, a former Republican stronghold on Long Island with a budget bigger than 16 states, and has fixed it. Its bond rating has been upgraded 11 times since he took over. Or as the New York Post said when he was re-elected in November, “There was good reason for Suozzi's impressive victory: He inherited a bankrupt county and has turned things around.” One may expect the announcement of two more high profile cases from Mr. Spitzer this year – one just before the primary, and if he wins that, another just before the November election. Time will tell whether that prediction is cynical or prescient.

© Copyright 2006 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Fedora Linux.

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