Hardware level security is important, but one must know that whenever you involve hardware into the equation you must allow for collateral damage.
Trusting trust is hard. You can't expect the verifier to verify the security module you got changed from the guy in a basement. Might as well get the OS and kernel from the same guy too.
The reason this disables your phone is the same reason you see a red page when using self signed certificates. The guy vetting you isn't vetted himself. Now there is a case to be made that Apple should just show you a warning and let you use the phone. But this isn't about protecting your privacy, this is about protecting privacy of the guy whose phone you found.