Official Government Website

Brokered Certificates of Deposit

In the case of "brokered certificates of deposit (CDs)," a "broker" typically purchases one or more jumbo CDs which are federally insured and then sells fractionalized investments using the pool of CDs as collateral. The investors are misled into believing that they are buying the CDs themselves when in fact they are simply making an investment with the broker.

The risks and potential fraud allegations in brokered CD offerings may include the following:
  1. The broker may be selling investments which require him or her to have a securities broker dealer license, without disclosing that fact.
  2. The investors are led to believe that they are purchasing whole CDs when in fact they are purchasing fractional interests in a CD which is not in their name but is in the name of the broker.
  3. The investors believe that they are investing in one-year CDs when in fact they are investing in "zero coupon" CDs which may not mature for 15-25 years.
  4. The investors may not be told that their investment is subject to commissions as high as 50% and to substantial fees and penalties for early withdrawal, if early withdrawal is even possible. It may be that the only way they can liquidate is by the broker selling their interest to someone else in a secondary market made by the brokers themselves, and even then only at a substantial discount.
  5. The investors may be told that the CD is "callable" after one year, not realizing that that feature allows the bank to redeem the CD if interest rates have gone down and it is no longer as profitable for the bank, but the investor has no such right to redeem the CD before its maturity date.
  6. The investors may not be told that the broker may be commingling investment funds with other operating funds and using them for other purposes.
  7. The investors may not receive offering materials that describe the risks of the investment, or those materials may be couched in language which downplays or obscures those risks.
  8. Investors are not told that they are linked in the investment with other investors and that in the event of default by the broker they have no recourse against the CDs and do not know the identities of other victims for purposes of jointly pursuing whatever legal actions they may have against the broker.
  9. Advertising is misleading in that it implies that dealing with a CD broker is the same as dealing with a bank, including such inducements as "FDIC Insured to $100,000," "Convenient no waiting in line at the bank," and "Customized banking."

Additional information can be obtained from the Department of Finances’ Website at and North American Securities Administrators Association’s Website at, or by calling the Department’s consumer services representative at 208-332-8000.