The Securities and Exchange Commission charged H&R Block (HRB) subsidiary Option One on Tuesday with defrauding investors in subprime mortgage investments.

The SEC claims that Option One misled investors in several offerings of subprime residential mortgage backed securities. To settle the fraud charges, Option One, now known as Sand Canyon Corporation, agreed to pay more than $28.2 million, without admitting or denying the SEC allegations.

Option One originated, sold and serviced subprime mortgage loans. In 2006 and 2007, Option One was one of the nation’s largest subprime originators with originations of more than $30 billion in 2006. In 2000, the company originated about $4 billion in subprime loans.

In the complaint filed today in the United States District Court for the Central District of California, the SEC alleges that between January and March 2007, Option One offered and sold more than $4.3 billion of RMBS in seven separate offerings.

Option One, according to the complaint, misled investors in its RMBS by promising to repurchase or replace mortgages in its RMBS that breached representations and warranties. These promises were rendered misleading by Option One’s failure to disclose that its financial condition was significantly deteriorating and it could not meet its repurchase obligations on its own.

The SEC further alleges that at the time Option One offered and sold the RMBS, it needed to rely on voluntary financial support from H&R Block to meet its financial obligations but that H&R Block was under no obligation to continue providing that financing. Option One never disclosed this information to investors, the SEC said.