Articles Posted in H&R Block

Our securities fraud lawyers are looking into claims by investors regarding their purchase of reverse convertible notes from H&R Block Financial Advisors. Just this week, the Financial Industry Regulatory Authority imposed a $200,000 fine on the broker-dealer for failing to set up proper supervisory systems over RCN sales. H & R Block was also ordered to pay $75,000 to an elderly couple that sustained financial losses from their RCN investments.

FINRA found that not only did H & R Block fail to properly monitor customer accounts for possible RCN over-concentrations, but they also failed to detect and respond to these possible over-concentrations. This is FINRA’s first enforcement action over RCN sales.

Reverse Convertible Notes

The Financial Industry Regulatory Authority (FINRA) has fined H&R Block Financial Advisors (now Ameriprise Advisor Services) $200,000 for failing to put in place the proper system to supervise its reverse convertible notes (RCN) sales to retail clients. FINRA also suspended H & R broker Andrew MacGill for 15 days while ordering him to pay a $10,000 fine and $2,023 in disgorgement for making unsuitable RNC sales to a retired couple. MacGill recommended that they invest close to 40% of their total liquid net worth in RCNs. Meantime, H & R Block has been ordered to pay the couple $75,000 in restitution for their financial losses. Without denying or admitting to the charges, the brokerage firm and MacGill consented to the finding’s entry.

According to FINRA, between January 2004 and December 2007, H&R Block sold RCNs without a system of procedures in place to properly monitor whether possible over-concentrations in RCNs were taking place in customer accounts. FINRA says that the brokerage firm relied on an automated surveillance system to monitor client accounts and review securities transactions for unsuitability but that the system was not set up to monitor RCN placement in customer accounts or RCN transactions. This caused H & R Block to miss signs of when there were potentially unsuitable levels of RCN in client accounts. Furthermore, FINRA says that the firm failed to provide guidance to its supervisors regarding the assessment of suitability standards related to their agents’ recommendation of RCNs to the firm’s clients.

This is FINRA’s first enforcement action over RCN sales.

H&R Block reported a loss of $433.7 million for its fiscal year 2007, compared to a gain of $490.4 million a year ago, and it lost $85.6 million in the fourth quarter vs. a gain of $587.5 in the year earlier period. The losses can mostly be attributed to Option One, its subprime mortgage unit, which the company hopes to soon sell.

The nation’s largest tax preparer was started in Kansas City by Henry and Roger “Bloch” brothers when the IRS stopped preparing tax returns free in 1955. The firm has been hugely successful in that business – for a few months out of the year. Yet the firm has been mostly unsuccessful in other ventures seeking to earn revenues the rest of the year.

Its investment subsidiary, H&R Block Financial Advisors, arose from the Block’s purchase of Olde Financial Company in 1998 for $850 million. At the time Olde and its founder were in the midst of many regulatory and other woes, many of which Block inherited.

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