Financial regulators are often ineffective. And though I've written on the topic before, this story is about a financial regulator that openly puts its seal of approval on deceiving the public. Here's an update on the CD too good to be true, and the Colorado Division of Insurance that has allowed this tactic to sell annuities for the last 15 months. It's also the story of a brave man who stepped forward and the regulator who dismissed him.
A Brief History
More than 15 months ago, I wrote about a 3.45 percent APY CD that was too good to be true. I knew it was too good to be true because when I went to buy it, I learned that no such CD existed. American First Assurance. Nexity Bank claimed they were a broker representing the three and a half star rated bank. In reality, Nexity Bank disavowed having any relationship whatsoever with American First Assurance, which turned out to be a one star rated bank that recently was shut down by regulators. What they were actually doing was suckering consumers into coming in for the CD and walking out with an insurance annuity or two.
Insurance annuities such as Equity Indexed Annuities are complex instruments that promise stock market returns without risk. In reality, they don't deliver and are filled with tricks. Equity Indexed Annuities have developed such a bad name that the industry has attempted a name makeover.
The Colorado Division of Insurance told me they had opened an investigation on this annuity sales tactic. And yet, a month later, the advertisements still ran. I began to wonder whether financial regulators were even relevant. I also called American First again and they assured me their CDs were now legitimate and invited me to stop by and give it another shot. So I showed up at the agreed upon day and time, only to find that there was no American First representative at the office suites to meet me. I waited a while, but when nobody showed up, I left for a second time without writing a check for my CD.
American First Assurance Today
CD rates have plunged over the past 15 months, yet that has not proven to be the case with American First. In fact, the 3.45 percent CD that was too good to be true is now replaced with this 3.95 percent APY advertisement taken from the May 1, 2011, Colorado Springs Gazette.
An insider steps forward.
Early last year, I received an email from an American First insider, Ben Brazier. He claimed he had turned down an offer to open American First's Denver, Colorado office to sell annuities. He stated that he interviewed with a man named Jeff Schwertfeger for the job, but decided to turn it down after he found FINRA regulatory charges of CD Fraud against Jeff Schwertfeger. To support the allegation, Brazier produced an unsigned letter regarding his new employment training in Salt Lake City, and that he would be staying at "Jeff Schwertfeger's Vacation Rental Home."
The letter included Schwertfeger's cell number as well a contact number for Amanda Bennett, who is listed as the managing member of American First Assurance, LLC registered in Utah. Though Ms. Bennett did not return multiple calls, Schwertfeger did answer his cell when I called. He acknowledged his name was Jeff Schwertfeger, but denied having any knowledge of American First Assurance.
Turn the page to see how the regulator reacted.
The Colorado Division of Insurance worries about being embarrassed
It's absolutely possible that the Jeff Schwertfeger Brazier interviewed is not the same person FINRA accused of CD fraud a decade earlier, but it was clearly something that needed to be determined. And when this matter was turned over to the Colorado Regulator, even I thought it would result in action.
A month later, Brazier admitted he was shocked that he hadn't been contacted by the Division, as was I. So I followed up with an email to Marcy Morrison, the Insurance Commissioner, asking the status of the investigation. She responded in an email to staff which I'm guessing I wasn't meant to be copied on.
"What's the latest on Alan Roth and his most recent complaint to embarrass the division?"
Morrison since resigned her position though there is no evidence it was related to this issue.
The regulator's Director of Compliance and Investigations, Paula Sisneros, did state the investigation should be wrapped up by December 2010. That didn't happen.
Lo and behold, Ben Brazier finally got a call from the Colorado regulator. He stated that the person who called him identified herself as a contractor who would not be with the Division for more than two additional weeks. Brazier noted the call lasted about ten minutes, and he felt that the regulator was "only going through the motions." She did tell Brazier they were looking for any evidence tying Schwartzfeger and Bennett together, proving the regulator hadn't actually read the letter I had forwarded to them months earlier.
Regulator turns silent
Neither the Division nor Barbara Kelly, the executive director of the Colorado Department of Regulatory Agencies, would comment or even give a revised date after failing to meet the December 2010 target.
Since Colorado law apparently prohibits the word "deposit" in advertisement to sell insurance products, I asked both whether they were able to find that word in the advertisements. Apparently, 15 months of investigation was unable to make that determination.
I did ask Larry Liston, Colorado State Representative and Chair of the House, Economics & Business Development Committee, to comment on the matter. He tried to get the Division to give him information but was unsuccessful. Mr. Liston stated that he felt the Division was doing the best they could with limited resources. Yet he also admitted that it was troubling that the investigation had taken 15 months and resulted in leaving Colorado consumers at risk when it comes to trying to save and plan for retirement.
I'm clearly not a fan of American First Assurance, but I think the most deceptive advertisement comes from the regulator itself - "Consumer protection is our mission" is prominently displayed on their web site.
I can only wonder how many Colorado consumers responded to the CD advertisement and ended up walking out with an annuity. Since it was done with the full knowledge of the Colorado Division of Insurance, I think the Insurance Commissioner and all employees involved are doing anything but protecting the consumer. A more accurate statement would be -"Producer and Insurance Company Protection is our mission."
But regardless of what their mission statement promises, the bottom line is that this Colorado regulator isn't regulating. They are not acting as the guardian at Colorado's gate that is there to protect consumers from investment trickery. In practice, their indifference not only leaves the gate wide open, it puts down a welcome mat that invites insurance agents to come on in and deceive Colorado seniors with impunity.
Since American First started this tactic, there are now two others following suit advertising in The Denver Post. Other state regulators, such as Minnesota, have been far more proactive in protecting their seniors such as shown in this Dateline NBC Hidden Camera Investigation on tricks of the trade.
When it comes to financial sales in America, it's a jungle out there. Regulators are often ineffective and occasionally support deceit, as I feel is happening here. So it appears that investors must act as their own regulators and, as such, must remember to never buy a product they don't fully understand.
Note: The author is licensed by the Division of Securities, another agency within the Colorado Department of Regulatory Agencies.
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