In the weeks before

Enron's

December 2001 bankruptcy, H&R Block Financial Advisors fraudulently peddled the energy company's soon-to-be-worthless bonds to unsuspecting customers, securities regulators alleged Monday.

The

NASD

contends

H&R Block

(HRB) - Get Report

, the large tax-consulting firm, brokered $16 million worth of Enron bonds to more than 800 customers in the four weeks prior to Enron's collapse. H&R brokers were selling the bonds during a time Enron's stock was collapsing and the business press was full of stories about a potentially massive accounting fraud at the company.

Regulators allege H&R reaped profits of $500,000 from the bond sales, without fully disclosing the risk to its customers.

"This is an especially troubling case where hundreds of unsuspecting individual investors innocently relied on their H&R Block brokers to give fair and honest advice concerning investments," said NASD Vice Chairman Mary Schapiro. "But H&R Block brokers betrayed that trust by selling these investors highly risky Enron bonds."

Shares of H&R Block were recently down $1.32, or 2.7%, to $48.05.

H&R Block, meanwhile, defended its actions, saying the full extent of the fraud at Enron wasn't know prior to the bankruptcy filing. The company, in a statement, said it was sorry its customers had lost money.

"At the time of sale, these bonds were rated investment grade by the national rating services, and evidence of internal fraud at Enron had yet to be discovered," said Nick Spaeth, H&R Block's senior vice president and chief legal officer.