Former Army staffer charged in fraud scheme targeting Gold Star families
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A former Army financial counselor was charged Thursday with defrauding grieving military families out of life insurance payments for their dead loved ones, allegedly using investment trades to bleed their accounts and fatten his own. Wp Get the full experience. Choose your plan ArrowRight The U.S. attorneys office in New Jersey charged Caz Craffy on 10 counts, including wire and securities fraud, accusing him of swindling two dozen Army families out of six-figure life insurance payments while moonlighting at brokerage firms. Federal investigators said the families’ accounts shrank by $3.4 million due to market losses and $1.4 million in commissions paid to Craffy.
The charges follow a Washington Post report from February detailing the allegations of four military families who said Craffy strip-mined their accounts through trades that earned him thousands of dollars in commissions, often executed, the families alleged, without their consent or consultation.
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In addition to the criminal charges, the Securities and Exchange Commission filed a civil complaint against Craffy and the firm where he worked, “seeking permanent injunctions, disgorgement of allegedly ill-gotten gains, plus interest, and civil penalties.”
The SEC’s complaint charges Craffy with violating the antifraud provisions of the federal securities laws and the “best interest” standard for broker-dealers. The SEC also noted “one particularly egregious offense,” in which Craffy is alleged to have “misappropriated $50,000 from the IRA account of a minor child whose parent had died on active duty.”
The Financial Industry Regulatory Authority, Finra, a nongovernmental body that oversees broker-dealers, also took action against the firm where Craffy worked, a move that will likely shutter the business.
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“Stealing from Gold Star families whose loved ones made the ultimate sacrifice in service to our nation is a shameful crime,” Attorney General Merrick Garland said in a written statement.
New Jersey U.S. Attorney Philip Sellinger said Gold Star families “deserve our utmost respect and compassion, as well as some small measure of financial security from a grateful nation. They must be off-limits for fraudsters. But, as the indictment alleges, this defendant took advantage of his role as an Army financial counselor to prey upon these families, using lies and deception to steer their investments in a way that would make him money.”
After The Post’s story, more families came forward to make similar allegations against Craffy, said Natalie Khawam, an attorney representing nine families who suffered financial losses from investments with Craffy and are pursuing options for recouping their funds.
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“The fraud that was committed on these susceptible Gold Star families was despicable,” she said, referring to the designation given to immediate relatives that have lost a service member. The term is often associated with troops killed in combat.
Lawmakers, in response to The Post’s story, introduced an amendment that would better screen for conflicts of interest among military financial counselors. There are about 400 financial counselors across the Defense Department, according to the office of Rep. Mikie Sherrill (D-N.J.), the lawmaker who introduced the legislation.
Life insurance beneficiaries receive up to $600,000 in payments and related emergency assistance following the death of a service member. About three dozen Army counselors help the families of the deceased “educate and support their clients on their benefits and estate planning needs,” the service said. Their duties “do not include recommending or choosing specific investments and investing money.”
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Families accusing Craffy of misconduct told similar stories about their investment portfolios. While navigating a heart-wrenching loss, they received a few information briefs about receiving life insurance funds and an introduction to an Army official to help guide them through the confusion and pain.
Craffy, they allege, opened investment accounts which then cratered in value while he reaped commissions on trades that were often speculative. In announcing the charges, authorities said Craffy didn’t particularly care whether the trades made money or not, because he was racking up commissions.
Craffy’s attorney Mark A. Berman declined to comment.
Jordan Dorsey met Craffy after her older brother, Sgt. Vaughn Dorsey, passed away from diabetes complications in 2021. They met at a diner in Stamford, Conn., to talk about her financial options. She was 24 at the time, and Craffy told her it would be wise to invest with a financial counselor, she recalled.
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Craffy got to work investing the life insurance money, making trades without her knowledge. Some of them were high risk, she said, including the meme stock AMC. Craffy would explain he had insider knowledge of what stocks would rebound, she said, to assuage her concerns.
It seemed above board, she said, because he was appointed by the Army. But the accounts she invested lost about $220,000, she said.
“I assumed he had my best interest at heart,” she said. “I really didn’t realize he wasn’t supposed to manage my money until the Department of Defense called me.”
Craffy’s alleged dealings led financial regulators to his former employer, Monmouth Capital Management, a New Jersey-based brokerage firm.
Finra, the regulatory agency, said it found substantial misconduct endemic to the company, including violations of Securities and Exchange Commission regulations requiring brokers to put the best interest of clients before their own, and “churning,” an illegal practice of excessive trading to produce commissions at high volume. Six Monmouth employees churned nearly half of 110 accounts from 2020 through this February, “causing customers to incur approximately $3.9 million in commissions and trading costs and to suffer substantial losses,” Finra said in a statement.
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The company also provided “false and misleading disclosures” to customers, Finra said.
“Monmouth abdicated its responsibility to reasonably supervise its representatives’ trading, resulting in substantial harm to customers, including Gold Star families,” Christopher J. Kelly, Finra’s acting head of enforcement, said in a statement. “The egregiousness of the firm’s sales practice and supervisory violations necessitated expulsion of the firm from FINRA membership.”
Monmouth Capital Management did not return a request for comment.
The findings are consistent with an independent assessment of Craffy’s trading patterns. Carolyn McClanahan, a certified financial planner, reviewed dozens of pages from four families’ account statements showing trades Craffy made over two-plus years. There was evidence of churning and dubious strategies, McClanahan said in February, including a lack of diversification and chasing volatile investments.
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Craffy’s alleged misconduct went undetected for years. He was hired by the Army in 2017, the service has said, when he was already working as a broker at another firm, according to Finra and former colleagues. The service said it was unaware of his outside employment until last fall, when a family member filed a complaint.
Craffy was fired from Monmouth in November, according to Finra, and left the Army in January. Officials said his actions prompted an internal review to ensure its financial counselors have followed ethical and legal standards. Sgt. 1st Class Anthony Hewitt, an Army spokesperson, said the review determined that “the situation in question was an isolated incident.”
Craffy’s charges brought some positive news to Army survivors.
“To misuse the funds left to us by deceased family members is disgusting and disheartening,” Dorsey said. “This has been an unimaginable experience that completely blindsided us all, but with the help of our legal system, we hope for a favorable outcome of justice being served.”
Devlin Barrett contributed to this report.
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Source: The Washington Post
