A former U.S. Army financial counselor has been indicted by a federal grand jury and charged in a civil complaint by the Securities and Exchange Commission with defrauding families who lost loved ones in the military of millions in survivor benefits.
Caz L. Craffy, also known as “Carz Craffey,” 41, of Colts Neck, New Jersey, was indicted on six counts of wire fraud and one count each of securities fraud, making false statements in a loan application, committing acts furthering a personal financial interest, and making false statements to a federal agency. Craffy was expected to make his initial appearance July 7 before U.S. Magistrate Judge Tonianne J. Bongiovanni at the Trenton (N.J.) Federal Courthouse.
The wire fraud and securities fraud charges are each punishable by a maximum of 20 years in prison. The charge of submitting a false statement on a loan application is punishable by a maximum of two years in prison. The charges of acts affecting a personal interest and false statements to a federal agent are each punishable by five years in prison. All counts but the securities fraud count are also punishable by a maximum fine of either $250,000 or twice the gain or loss from the offense, whichever is greatest. The securities fraud count is punishable by a maximum fine of either $5 million or twice the gain or loss from the offense, whichever is greatest.
Gold Star families victimized
“Stealing from Gold Star families whose loved ones made the ultimate sacrifice in service to our nation is a shameful crime,” said Attorney General Merrick B. Garland in a press release. “As alleged in the indictment, the defendant in this case used his position as an Army financial counselor to defraud Gold Star families, steal their money, and enrich himself. Predatory conduct that targets the families of fallen American service members will be met with the full force of the Justice Department.”
The U.S. Attorney’s Office, District of New Jersey, explained that when a service member dies during active duty, his or her survivors are called Gold Star families. The surviving beneficiary is entitled to a $100,000 death gratuity and the soldier’s life insurance of up to $400,000. The payments are disbursed to the beneficiary within weeks or months following the death and they are offered the assistance of a financial counselor.
From November 2017 to January 2023, Craffy was a civilian employee of the U.S. Army, working as a financial counselor at the U.S. Army’s Fort Dix Survivor Outreach Services program. He was also a major in the U.S. Army Reserves, where he has been enlisted since 2003.
Side hustle was prohibited
Craffy was responsible for providing general financial education to the surviving beneficiaries. He was prohibited from offering any personal opinions regarding the surviving beneficiary’s benefits decisions, the attorney’s office said. Craffy was not permitted to participate personally in any government matter in which he had an outside financial interest. However, without telling the Army, Craffy simultaneously maintained outside employment with two separate financial investment firms, it added.
Craffy used his position as an Army financial counselor to identify and target Gold Star families and other military families, the government charges. He encouraged the Gold Star families to invest their survivor benefits in investment accounts that he managed in his outside, private employment. Based upon Craffy’s false representations and omissions, the attorney’s office said, the vast majority of the Gold Star families mistakenly believed that Craffy’s management of their money was done on behalf of and with the Army’s authorization.
From May 2018 to November 2022, Craffy obtained more than $9.9 million from Gold Star families to invest in accounts managed by Craffy in his private capacity, the attorney’s office said. Once in control of this money, Craffy repeatedly executed trades, often without the family’s authorization, it charged.
These unauthorized trades earned Craffy high commissions. During the timeframe of the alleged scheme, the Gold Star family accounts had lost more than $3.4 million, while Craffy personally earned more than $1.4 million in commissions, drawn from the family accounts, the U.S. Attorney’s Office said.
More than 1,000 unauthorized trades
The SEC’s complaint said Craffy executed over 1,000 unauthorized trades in accounts, many of which were individual retirement accounts, for at least the 31 customers.
Craffy directed them to transfer their benefits into brokerage accounts he managed outside of his official duties with the U.S. Army, the SEC said. Once the funds were deposited, he engaged in unauthorized trading and made trades that were not suitable for his customers’ risk profiles and investment objectives, exposing them to higher risks of loss due to excessive trading, concentration, and lack of diversification, the complaint charges.
The SEC complaint provided specific examples of how it charges Craffy defrauded clients.
Customer 9, for instance, was a Gold Star family member whose husband died while he was an active duty service member. Customer 9 became a widow with three children, one of whom was five years away from starting college.
“Craffy falsely told Customer 9 that she would have to invest with Craffy in order to take advantage of certain tax benefits. As a result, Customer 9 opened a Roth IRA with Brokerage Firm B at Craffy’s direction and funded it with the full $500,000 she had received in survivor benefits and insurance payments. Craffy told Customer 9 that he would make her ‘a ton of money,’ up to $10,000 per month, but never explained how he would trade in her account.
“Customer 9’s account was non-discretionary, meaning that Craffy was required to obtain permission from Customer 9 before placing any trades in her account. … While Craffy was managing Customer 9’s account, Customer 9 suffered realized losses of about $122,000, of which approximately $73,000 were fees and commissions that were largely paid to Craffy. Customer 9 also suffered approximate unrealized losses of an additional $24,000.”
Another customer was 73 years old and already retired when she first met Craffy. Most of her net worth derived from death benefits and insurance payments she received after her son died while serving overseas, the SEC said. She had no investment experience, was retired and needed to preserve capital. Instead, Craffy concentrated her investments in a small group of stocks, the SEC said. In another case, the complaint says, Craffy took the money of minor children who lost their father in the military and excessively traded and invested too aggressively.
Misrepresentation and mischaracterization
According to the SEC, some of Craffy’s customers eventually began questioning him about the losses in their accounts. In response, Craffy misrepresented and mischaracterized the unauthorized trades he had placed in their accounts, the complaint alleges.
“For example, Craffy told customers that the war in Ukraine or the Covid-19 pandemic had caused their account balances to fall, but often failed to disclose that his trading had incurred large fees that contributed to their specific losses. In addition, Craffy hid account information from some customers, including by directing that they not look at account statements. For example, when Customer 11’s daughter asked in December 2021 about the value of Customer 11’s account, Craffy wrote in a text message: ‘Hey hey … haven’t you been watching the news. Our positions are the same but Omicron has taken a bite out of it. Don’t have mom look at anything!!!!’ When Customer 11’s daughter again asked about the account value in April 2022, Craffy replied, ‘Don’t ask! Just let me do the work for a few months!’”
Craffy had been associated with five broker-dealer firms from 2011 until November 2022, and has held Series 7 and 63 securities licenses. On December 8, 2022, the Financial Industry Regulatory Authority barred Craffy from associating with any Finra member in all capacities, including as a broker, because he failed to provide information and testimony as required under Finra rules.