H&R Block Financial Background Information

H&R Block was founded in Kansas City in 1955 when the IRS stopped preparing tax returns free.  Founders, Harvard business graduate Henry and his brother Richard “Bloch”, soon changed the firm's name to "Block" to prevent mispronunciation. Instead of joining them, Brother Leon had returned to law school.

Block reports that it has over 12,000 locations worldwide and serves over 21 million clients annually in 21 countries. (Oversees workers pay taxes too.) H&R Block also earns significant profits from “Refund Anticipation Loans”, a controversial business. The firm also operates a school for tax preparers and provides mortgage lending and banking services.

In 2004, Jeopardy Champion Ken Jennings lost after 74 straight appearances by missing "What is H&R Block?" to the clue: "Most of this firm's 70,000 seasonal white-collar employees work only four months a year."  In 1980, Block acquired CompuServe as a source of revenue in non-tax months, but sold it in 1997 in a three-way transaction between it, AOL and now defunct Worldcom. 

H&R Block Financial Advisors arose from the Block’s subsequent purchase of Olde Financial Company in 1998 for $850 million.  Founded in the 1970's, Olde had become the country's fourth largest discount broker.  Olde also had 181 brokerage branches in 35 states and a total of 600,000 active brokerage accounts with $37 billion in total equity.

Olde and its namesake owner were at the time suffering from a multitude of regulatory and other woes. Block Financial Advisors thus inherited from Olde most of its 300+ page public disclosure report, which reflects 54 regulatory actions, including fines, censures and suspensions by the SEC, NASD, New York Stock Exchange, Chicago Mercantile Exchange and a half dozen states, along with over 300 arbitration actions.

H&R Block Financial Advisors is a registered broker-dealer which, its website indicates, markets securities, mutual funds, annuities and life insurance products, including products provided by H&R Block Insurance Agency of Massachusetts, Inc.  As do other brokerage firms, Block touts that investors’ accounts at the firm are insured by the Securities Investors Protection Corporation (SIPC) without explaining that this insurance does not include coverage of securities fraud.

Shepherd Smith Edwards & Kantas LTD LLP Law Firm

Our law firm represents institutional and individual investors nationwide with significant losses in their portfolios, retirement plans or investment accounts.  Our attorneys and staff have more than 100 years of combined experience in the securities industry and in securities law. Several of our lawyers served for years as Vice President or Compliance Officer of brokerage firms.

Each lawyer and staff member of our firm is devoted to assisting investors to recover losses caused by unsuitability, over-concentration, fraud, misrepresentation, self-dealing, unauthorized trades or other wrongful acts, whether intentional or negligent.  We have handled over a thousand cases against hundreds of large and small investment firms.

Call us at (800)259-9010 or contact us through our Website to arrange a free confidential consultation with an attorney to discuss your experiences with an investment advisor or financial firm which resulted in losses.

Additional Information:

Tax Pro H&R Block Faces Its Own Tax Woes

In August 2005, H&R Block announced it had overstated its earnings for 2003 and 2004 by $91.1 million. The company stated that it had "insufficient resources" to identify and report complex transactions in its corporate tax accounting.     

In 2006, the company admitted in a quarterly result that it had miscalculated its own state income taxes for 2005 and 2004 and that it owed an additional $32 million in back taxes. That mistake plus its lower-than-expected earnings for the quarter caused its stock price to drop by 8.5% in one day.

The takeover of Citicorp by Travelers was deemed illegal because the Glass-Steagall Act, legislation, stemming from the United States' Great Depression era, did not allow banks to merge with insurance underwriters.

Yet, lawyers for the new financial giant, found the Federal Reserve could grant it a two year trial period before the insurance underwriting division must be divested. Weill and his counterpart at Citicorp went to work to change the law before that expiration date.  Through efforts of heavyweight lobbyists, even former President Gerald Ford, the law was finally changed in 1999 with the passing of the Gramm-Leach-Bliley Act.

Oddly enough, the company soon spun off its Travelers Property and Casualty insurance underwriting business deeming it as a drag on Citigroup stock price.  The brokerage and banking unites attempted to co-exist, but too many egos were at work.  Infighting between corporate bankers and investment bankers culminated with a drunken skirmish between the heads at a company retreat led to the ousting of the banking head.

California Sues H&R Block over Refund Loans

In 2006, California's attorney general sued H&R Block over the company's refund anticipation loan business. The allegations made in the suit stated that Block charged some borrowers annualized interest rates exceeding 500% including fees. The attorney general said the company falsely portrays the nature of the loans, advertising "cash, cold, green, in your hand, out the door."

New York Sues H&R Block Over “Express IRA”

In 2006, then New York Attorney General Eliot Spitzer sued H&R Block in connection with the sales of the H&R Block Express IRA. The allegations included that the IRA product earned less money for customers than the fees paid by the customers. The complaint accused Block of fraudulent business practices, deceptive acts and practices, fraud and breach of fiduciary duty. The company denied the charges and said it would fight the charges in court.

NASD Charges H&R Block With Enron Bond Fraud

The NASD charged H&R Block Financial Advisors, Inc., with fraud in the sale of millions of dollars worth of Enron Corporation bonds just weeks before it declared bankruptcy but after public disclosures of Enron’s financial conditions and bond ratings, had already begun to collapse.

Approximately 200 H&R Block brokers reportedly recommended and sold over $16 million worth of Enron bonds to more than 800 customers in approximately 40 states.  Meanwhile, the claim states that H&R Block paid its brokers special incentives while making profits on the bonds of over $500,000.

When Enron declared bankruptcy weeks later, the value of the bonds plummeted to a fraction of the original investment, causing most H&R Block customers who invested in the bonds to lose substantially all of their investment.

The NASD charges stated that some H&R Block brokers stated that an investment in the Enron bonds was safe, that Enron was a large company that could not or would not fail, and that Enron’s credit rating was higher than it was and failed to disclose the serious and significant risks of investing in Enron bonds.  H&R Block was also charged with failing to establish and maintain an adequate supervisory system to monitor the sales of the Enron bonds.

H&R Block Fined for Enabling Trading Fraud

The NASD censured and fined H&R Block Financial Advisors, Inc. $500,000 for enabling a hedge fund customer to use in deception to market time mutual funds.  Block was also ordered to disgorge its profits of $325,000 to the affected funds.

“The deceptive market timing practices found in this investigation do more than just violate securities regulations – they have a profoundly negative impact on investor confidence” said a NASD official, “The ... NASD expects firms to have enhanced procedures, systems and practices to ensure that illicit market timing activities like these do not occur.”

The NASD found that: Two brokers and a branch office manager of H&R Block enabled one of the brokers’ customers to evade mutual fund attempts to block or restrict the client’s market timing transactions.  Block recruited and hired the brokers knowing they would open accounts for hedge funds intending to actively trade or market time in mutual funds which discouraged such trading.  Knowing the clients intended to trade the funds, Block agreed to charge a flat fee higher than normal for accounts that large.

The two Orlando brokers opened a total of 19 accounts for seven clients of a total value over $30 million, said the NASD, and one hedge fund client used seven different accounts to engage in the deceptive market timing practices. Although H&R Block received 44 restriction letters designed to block the customer’s market timing activities, the firm enabled the hedge fund to use related accounts to continue the trading, the NASD added.  

The brokers allegedly assisted the clients with numerous bank transfers to perpetrate the fraud, and attempted to help the clients avoid detection by requesting changes in the broker of record on accounts from one of them to the other and to a house account while the branch manager and branch approved and processed necessary forms.   


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