Ex-Army advisor to bereaved families faces decades in prison after fraud plea

A former U.S. Army Reserve financial counselor is staring at possibly decades in prison after admitting to fraudulently investing millions entrusted to him by bereaved military families.

Caz Craffy, also known as Carz Craffey, pleaded guilty on April 16 to six counts of wire fraud and other crimes related to his handling of more than $9.9 million placed in his care by Gold Star families — military households that have suffered the loss of an immediate member who was on active duty. Craffy, who had the rank of major and was stationed at Joint Base McGuire-Dix-Lakehurst in New Jersey, was put in touch with many of these families through his position as a financial counselor.

All told, the 41-year-old resident of Colts Neck, New Jersey, was accused of obtaining $9.9 million from Gold Star households over a four-year period ending in 2022 and then losing more than $3.7 million of it through a prohibited relationship with at least one outside securities firm. 

Prosecutors say Craffy made $1.4 million from his trades, which were often made at excessively frequent intervals.

"Nothing can undo the enormous loss that Gold Star families have suffered," U.S. Attorney General Merrick Garland said in a statement. "But the Justice Department is committed to doing everything in our power to protect them from further harm." 

Craffy's lawyer in the federal case did not immediately respond to a request for comment.

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Payouts to Gold Star families

Following the death of a relative during a time of conflict, Gold Star families receive $100,000 from the U.S. Department of Defense and as much as $400,000 in life insurance payments. Craffy's job was to provide them with basic information on topics like budgeting, saving for college, health care, insurance and retirement.

Military policy, though, barred him from providing any sort of "personal opinion" on how they should invest the money. He was also not supposed to have any connections to outside securities firms.

But unbeknownst to his clients, Craffy was registered with two independent brokerages, according to the indictment federal prosecutors filed against him in federal court in Trenton, New Jersey, in July last year. One of them, Monmouth Capital Management, was expelled from the securities business the same month by the Financial Industry Regulatory Authority following allegations related to the Craffy case.

The other, Newbridge Securities, remains a going concern. Robert Abrams, general counsel for Newbridge, said all of Craffy's illicit trading took place away from his firm.

"It's a very sad case," Abrams said on Tuesday. "But all of his activities were totally outside our activities. We had nothing to do with it."

Victims when they're most vulnerable

Louis Straney, a regulatory expert at Arbitration Insight, said the case shows how exposed certain groups are to fraud, especially if they are experiencing hardship and are looking for help. Given the vulnerability of the victims in the case, Straney said, he wouldn't be surprised if Craffy is hit with a heavy prison term when he's sentenced on Aug. 21.

"There's not going to be any sympathy for this guy," Straney said. "He knows better. He's a military officer, and he stole money from the most vulnerable and empathetic people you could imagine."

Chances for restitution

The six counts of wire fraud Craffy pleaded guilty to each carry a maximum of 20 years in prison. He also admitted to securities fraud (also a 20-year maximum), making false statements in a loan application (two years), and committing acts affecting a personal financial interest and making false statements to a federal agency (both of them five years.)

The securities fraud charge is also punishable by a fine of up to $5 million and each of the other charges by fines as high as $250,000. At least one lawyer representing Craffy's victims said she's hopeful her clients will be able to obtain some restitution.

But Natalie Khawam, the founder of Tampa, Florida-based Whistleblower Law Firm, doubts it will come from Craffy himself.

"I'd be very shocked if he had some kind of money stowed away or estate that we are not aware of," said Khawam, who's representing 13 of Craffy's victims. "I don't see him being the cash cow here by any means."

Instead, Khawam said, she's considering seeking restitution from the outside firms Craffy worked with. She's also looking into whether the Army or Department of Defense might have any liability.

"I don't think these clients would have gone to Caz if they did not provide him to them," Khawam said.

A Department of Defense spokeperson declined to comment.

The SEC's case

Craffy is also faced with civil charges from the Securities and Exchange Commission. The Wall Street regulator is accusing him of securities fraud and violations of the Regulation Best Interest, which requires brokers to always do what's best for their clients and disclose conflicts of interest.

In questioning Craffy's actions, the SEC particularly looked at what's known in the industry as turnover rates and cost-to-equity ratios. A turnover rate — which measures how often securities are traded within a particular portfolio — is generally considered questionable if it's above 6. Likewise, a cost-to-equity ratio — a comparison of expenses incurred by an account with the total assets it held over a given period — is suspect to regulators if it exceeds 20%.

The SEC found that Craffy had turnover rates as high as 10.5 and a cost-to-equity ratio greater than 38.6% with some of his clients. Its case seeks permanent injunctions and the disgorgement of ill-gotten gains, as well as interest and civil penalties.

Reason for hope?

Khawam said not all the results from the Craffy case have been unfortunate. A defense budget bill signed by President Joe Biden contains a provision requiring the Department of Defense to have its roughly 400 financial counselors file reports annually disclosing any conflicts of interest. 

Khawam — who worked on the bill with U.S. Rep. Mikie Sherrill, Democrat of New Jersey — said her hope is that the due-diligence mandate will prevent other Gold Star families from suffering like those she's representing in the Craffy case.

"What's the point of fixing this one case at a time?" she said. "So we worked on legislation, so other people wouldn't have to run into these issues."