NEW YORK (CNNMoney.com) - New York Attorney General Eliot Spitzer has added more allegations to his $250 million lawsuit against H&R Block, which he accused in March of marketing money-losing IRAs to its customers.

The state attorney general said Monday that managers of the nation's largest tax preparation company actively penalized tax preparers who refused to market money-losing IRAs to its customers.

Spitzer says H&R Block marketed a 'flawed product' to thousands of customers.

"In addition to designing a flawed product with hidden fees and marketing it fraudulently to unsuspecting customers, senior management steam-rolled conscientious employees who objected to the fact that clients were losing money," Spitzer said in a statement.

The lawsuit now alleges that managers disregarded complaints from tax preparers about misleading marketing of the Express IRA.

The original lawsuit said that H&R Block had steered hundreds of thousands of customers into IRAs with hidden fees and low interest rates, saying the fund "paid great rates" and was "a better way to save." (Full story)

But actually, 85 percent of customers who enrolled in the Express IRA paid more in fees than they earned in interest, according to Spitzer's office.

H&R Block responded to the allegations, saying, "We look forward to the Attorney General's office presenting its case in court rather than through the press. We continue to have complete confidence that our company and our Express IRA product will be fully vindicated once we've had our day in court.

"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."

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Spitzer sues insurer Liberty Mutual. Full story.

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