Fraud Charges Against Block Brokerage Dismissed
smartpros.com | 4/28/08 | Mark Davis
April 28, 2008 (The Kansas City Star, Mo.) — Regulators dismissed 3.5-year-old civil fraud charges today against the brokerage business of H&R Block that arose from its sales of Enron Corp. bonds to investors shortly before its spectacular 2001 failure.
"Today's decision fully vindicates our firm and financial advisers," Block said in a statement. The 56-page dismissal came from the Financial Industry Regulatory Authority, successor to the NASD that had brought the charges in November 2004.
Those charges claimed H&R Block Financial Advisors Inc. had failed to disclose the bonds' risks, including credit ratings downgrades, Enron's earnings restatements, a Securities and Exchange Commission investigation of Enron, and Enron's warning that it might not be able to continue as a going concern.
Block had denied the charges at the time and requested a hearing, which took place in three states over 24 days from May 2006 and August 2007. A Financial Industry Regulatory Authority statement today said a hearing panel found that enforcement officials failed to show "by a preponderance of evidence" that Block brokers had "misrepresented or omitted material facts" when selling the Enron bonds to investors.
The Financial Industry Regulatory Authority also dismissed its charges that H&R Block Financial Advisors had failed to implement adequate supervisory systems and procedures.
The NASD brought the charges after reviewing consumer complaints in 2003.
More than 800 Block Financial customers had purchased $16.4 million of Enron bonds in the month before the company's Dec. 2, 2001, bankruptcy filing. Enron failed amid one of the nation's largest corporate scandals, which helped trigger new accounting and financial reporting requirements.