St. Louis law firm files class action suit against H&R Block over

Daily Record and the Kansas City Daily News-Press, Sep 29, 2008

The St. Louis law firm of Carey & Danis filed a class action lawsuit on behalf of those who bought auction-rate securities from H&R Block Inc. and H&R Block Financial Advisors Inc. within the last five years.

The lawsuit, La Grave v. H&R Block, Inc., et al., was filed Sept. 24 in the U.S. District Court for the Southern District of Illinois. The suit alleges that H&R Block Inc. and its subsidiary H&R Block Financial Advisors Inc. violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 by deceiving investors about the investment characteristics of auction-rate securities and the auction market in which the securities are traded.

An H&R Block spokesman said the company does not comment on pending litigation.

In August, H&R Block announced plans to sell H&R Block Financial Advisors Inc. to Ameriprise Financial Inc. The transaction is expected to close around the beginning of the new year.

Auction rate securities are municipal or corporate debt securities or preferred stocks that pay interest at rates set through periodic auctions. The instruments typically have long-term maturity dates or no maturity date.

The suit filed alleges that H&R Block offered and sold auction- rate securities to the public as highly liquid cash-management instruments and as suitable alternatives to money market mutual funds. On Feb. 13, all of the major broker-dealers, including H&R Block, withdrew their support for the auctions. The suit claims that, as a result, investors have been unable to liquidate their auction rate securities.

The lawsuit alleges that H&R Block failed to disclose the following material facts about the auction rate securities it sold to the class:

The auction rate securities were not cash alternatives like money market funds but were instead complex long-term financial instruments with 30-year maturity dates.

The auction rate securities were only liquid at the time of the sale because H&R Block and other broker-dealers were artificially supporting and manipulating the market to maintain the appearance of liquidity and stability.

H&R Block and other broker-dealers routinely intervened in the auctions for their own benefit to set rates and to prevent all-hold auctions and failed auctions.

H&R Block continued to market auction rate securities as liquid investments even after H&R Block and other broker-dealers determined that they would likely be withdrawing support for the periodic auctions and that a freeze of the auction rate securities market would result.

The class consists of investors who bought auction-rate securities from the broker-dealer between Aug. 26, 2003, and Feb. 13 and who continued to hold the securities as of Feb. 13.