When a Financial Regulator Goes Bad

Last Updated May 20, 2011 9:45 PM EDT

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.

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    Allan S. Roth is the founder of Wealth Logic, an hourly based financial planning and investment advisory firm that advises clients with portfolios ranging from $10,000 to over $50 million. The author of How a Second Grader Beats Wall Street, Roth teaches investments and behavioral finance at the University of Denver and is a frequent speaker. He is required by law to note that his columns are not meant as specific investment advice, since any advice of that sort would need to take into account such things as each reader's willingness and need to take risk. His columns will specifically avoid the foolishness of predicting the next hot stock or what the stock market will do next month.