When the Securities and Exchange Commission filed charges against former Army financial counselor Caz Craffy Friday, it highlighted a need for financial protection for military families in possibly their most vulnerable moment. Craffy is accused of defrauding Gold Star families with unauthorized trading and  higher risk strategies that did not match customers’ investment profiles.

A new amendment to the fiscal 2024 National Defense Authorization Act would offer protection to military families when working with a Defense Department financial counselor. The amendment would mandate conflict of interest restrictions for DoD financial counselors and require reports to document any conflicts.

“Since this story broke, I have worked to close the legal gaps Mr. Craffy slipped through to hide his schemes, and my legislation in the NDAA will stop people from preying on families in the future,” said Rep. Mickie Sherrill (D-N.J.) the sponsor of the amendment in a statement.

The National Military Family Association (NMCA) worked with Sherrill to draft the provision.

“The legislation that Representative Sherrill’s office introduced, we endorsed, and we are excited that it does have bipartisan support, we know their office is also working with members in the Senate to have a companion piece on the Senate side that would address the need to ensure that financial counselors are free of conflict,” Meredith Smith, NMCA deputy director of government relations told Federal News Network.

Immediate relatives of a fallen active duty military service member are called Gold Star families. They receive a life insurance settlement usually valued at about $400,000 plus a $100,000 subsidy from the Defense Department. According to the SEC complaint, Craffy, a civilian employee of the Army, was assigned to counsel families about investing their money. However, he was also working for a private investment company where he used the survivors’ money to make risky stock investments.

“A lot of these families are vulnerable. They don’t know the rules of the Army or the military. As far as they knew, they trusted the Army that this is something that they had to do or that was best for them. Caz was taking advantage of this situation,” Natalie Khawam, an attorney representing 11 of the Gold Star families told Federal News Network.

Khawam said she is in the process of filing a civil suit on behalf of the families to recover some of the money they lost. She said her clients lost about half of the money they received, averaging about $200,000 in loses per family.

“What the Army was doing at this base was providing the families financial advisors. In this case, it was Caz Craffy. The families were being told things like ‘Oh, you have to use him’ or ‘You can’t be trusted with this kind of money, you need to use a financial advisor with this money,’” she said.

The SEC’s complaint, filed in the U.S. District Court for the District of New Jersey, charged Craffy with violating the antifraud provisions of federal securities laws and laws designed to promote transparency in retail investing. The SEC is seeking permanent injunctions, return of allegedly ill-gotten gains plus interest and civil penalties, according to an SEC statement.

The SEC said Craffy worked with the families between May 2018 and November 2022. He took control of the funds and put them into individual brokerage accounts.

“In that 54-month span, Craffy’s customers incurred more than $1.64 million in commissions and fees, most of which Craffy pocketed, while the accounts he managed suffered approximately $1.79 million in realized losses and faced additional unrealized losses of approximately $1.8 million,” the SEC statement said.  “In one particularly egregious offense, Craffy misappropriated $50,000 from the IRA account of a minor child whose parent had died on active duty.”

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