updated 5/8/2006 4:01:55 PM ET 2006-05-08T20:01:55

New York Attorney General Eliot Spitzer on Monday said he has evidence that H&R Block executives not only knew they were pushing customers to buy money-losing retirement account plans, but penalized employees who refused to recommend them.

Spitzer amended his March suit against the giant tax preparation company with copies of e-mails that he said show managers disregarded complaints from tax preparers about misleading marketing of the retirement product called Express IRA. The internal documents also showed that tax preparers were told “sell more IRAs” or “there’s the door.”

The company said in a statement that it will be “vindicated once we’ve had our day in court.”

“The company looks forward to the attorney general’s office presenting its case in court rather than through the press,” stated the Kansas City-based company. “That the attorney general’s office has chosen to ignore the facts, rely on information taken out of context, and continue to attack our company and our product seems tailored to objectives other than the merits of this case.”

Spitzer is a Democratic candidate for governor.

In March, Spitzer filed a $250 million fraud suit accusing the nation’s largest tax preparation service of steering more than 500,000 customers into a money losing retirement account plan. Spitzer said Block advised clients to buy an “unsuitable, fraudulently marketed, poorly performing, fee-ridden ’retirement vehicle’ called the Express IRA,” an account that actually shrinks over time.

Court papers say the amount of money in the retirement account decreases because the only investment option is a money market account with an interest rate so low that it does not cover the fees — “fees that H&R Block fails to adequately disclose.”

H&R Block in March issued an immediate and strong reply saying the company will “fight vigorously to defend the Express IRA product and ensure it remains available to our many clients who rely on it as a helpful savings option.”

“In addition to designing a flawed product with hidden fees and marketing it fraudulently to unsuspecting customers, senior management did more than simply ignore the concerns of its tax preparers; management penalized H&R Block tax professionals who refused to push the product,” Spitzer said.

The attorney general’s lawsuit seeks to stop the company from engaging in any fraudulent practices, force it to return profits and pay damages and restitution caused by its alleged scheme, and pay civil penalties in an amount no less than $250 million.

Spitzer said that H&R Block opened more than half a million Express IRA accounts in the last four years. He said 85 percent of customers who opened the accounts paid H&R Block more in fees than they earned in interest.

More than 150,000 customers closed their accounts, incurring additional undisclosed fees and almost $6 million in tax penalties, Spitzer said.

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