New EC2 from account generated AMI disallowing sftp connections that work in original server/source of AMI

1. I tested sftp set up on a free tier (.micro) server built from the aws linux ami (ami-06ca3ca175f37dd66). I was able to get it to work on this server with two sftp users using a 'Match Group' directive in the sshd_config. I could (and still can) login via sftp with both user accounts. We'll call this working set up 'SERVER 1'
2. I created an ami from SERVER 1 and used it to launch a .medium sized server with all the same specs, security group, vpc, etc. We'll call the new server, 'SERVER 2'.
3. I am able to ssh connect to SERVER 2, I am unable to connect either of the user accounts via sftp that work for SERVER 1.
4. I get the error: Connection closed by authenticating user username ipaddress port portnum [preauth].
5. This occurs both using an external client as well as attempting to connect from the sftp command on the same machine.

Anyone have any idea?

I have compared all the configs, sec groups, status messages I can think to compare and still can't figure out why two machines that appear be identical are giving two different behaviors. I also reset the passwords for the sftp users, same error.