New York State Attorney General Eliot Spitzer fired back in response to a March 24 Wall Street Journal editorial in which the paper criticized his lawsuit of tax-prep giant H&R Block and called for the gubernatorial hopeful to consider "a few more anger management classes."
The March 24 editorial said "the complaint cherrypicks data to paint a one-sided picture."
While some accounts did lose value, most were cases in which clients withdrew their money from the IRA and thus paid stiff Federal tax penalties, the editorial asserts.
"For the record, I always get upset when I see people being cheated," wrote Spitzer in a rebuttal editorial published Friday in the Wall Street Journal.
Spitzer filed a $250 million lawsuit against the Kansas City, Mo.-based company in New York State Supreme Court in Manhattan on March 15, claiming that H&R block fraudulently marketed its "Express IRA" product as a savings tool, when, in fact, 150,000 of the 600,000 clients who opened H&R Block Express IRAs actually lost money due to high fees.
The average Express IRA customer earned less than $30,000 per year, and often worked for employers who offered no retirement plans, according to the editorial. Forty-two percent of those who opened accounts had never opened a savings account, and 20% had no checking account. The H&R Block program drew support from think tanks and public interest groups such as the Washington-based Brookings Institution, and Pew Charitable Trusts, the editorial said.
But Spitzer countered that the fact that the Express IRA targets those demographics is precisely the reason Spitzer brought his suit, he said.
"The company was preying on lower-income people, steering them into individual retirement accounts that were virtually guaranteed to lose money," he wrote.
"Compared with the array of frauds my office has uncovered - including biased stock research, improper trading of mutual funds and bid-rigging in the insurance industry - H&R Block's conduct was in certain ways particularly egregious," Spitzer wrote in his response.
Spitzer argued that H&R Block failed to make clients aware of its $15 account opening fees, tax-computing fee of up to $20, $10 maintenance fee, $15 re-contribution fee, and $25 withdrawal fee. Spitzer also criticized H&R Block's promise to deliver "great rates," when the Express IRA paid less than 1% interest at times.
"Rather than let a jury evaluate his charges, Mr. Spitzer is once again threatening to use his power to ruin a company before it even steps into the courtroom," the editorial said. H&R Block makes an easy target, the editorial asserted, due to other bad news this tax season, including the fact the company filed incorrect state income tax returns last year.
As for the interest rates, that example pertains only to 2002 accounts, during a period where interest rates hit historic lows nationwide. Finally, the editorial criticized Spitzer for following a $30 million settlement offer, which H&R Block declined, with a $250 million lawsuit.
Spitzer cited internal H&R Block documents that show employees of the company expressed concern about the product and said "clients won't be happy about seeing their investments decreasing."
Spitzer turned the debate he had been having with H&R Block in the Wall Street Journal onto the Wall Street Journal 's editorial board.
"No true champion of free enterprise, as the Journal purports to be, would defend the failure to properly disclose fees to customers," Spitzer wrote. "And no one truly interested in encouraging people to save would recommend H&R Block's Express IRA. After all, how does losing money encourage anyone to save?"
The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.