SEC v. Caz L. Craffy; and Carz Levinski Craffey, No. 3:23-cv-03639, District of New Jersey (July 29, 2025) — Complaint

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY

SECURITIES AND EXCHANGE
COMMISSION,

                                             Plaintiff,

                        v.

CAZ L. CRAFFY
a/k/a CARZ LEVINSKI CRAFFEY,

                                             Defendant.

Civil Action No. 23-CV-3 639

JURY TRIAL DEMANDED

Plaintiff Securities and Exchange Commission (“SEC” or “Commission”), 100
Pearl St., Suite 20-100, New York, New York, 10004, files this complaint against
Caz L. Craffy, also known as Carz Levinski Craffey (“Craffy”), 4 Country Club Lane,
Colts Neck, New Jersey, 07722, and alleges as follows:
SUMMARY OF THE ACTION
1. Caz Craffy abused a position of trust to violate the antifraud provisions
and Regulation Best Interest of the federal securities laws.
2. From November 2017   through January 2023, Craffy worked full-time
as a U.S. Army Financial Counselor, tasked in part with helping Gold Star families
who had received survivor and insurance payments of   as much as $500,000 because
a   family member had died while on active duty. Concurrently, Craffy also worked
full-time as a broker for private brokerage firms, but failed to disclose these
positions to the Army as required by law and ethics rules.  Craffy then defrauded
grieving families to enrich himself.

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3. Craffy exploited the heartache and relative lack of financial
sophistication of at least 29   Gold Star family customers to direct that they transfer
funds to brokerage accounts under his control. Craffy subsequently engaged in
unauthorized trading in these and two other customers’ accounts, which led to large
commission payments for him and often to large losses for his customers. None of
these accounts was discretionary, meaning that Craffy could only conduct trades
with his customers’   explicit approval. Yet Craffy repeatedly traded without his
customers’ permission and hid his trades from them, including by directing that
customers not look at their account statements.  Craffy also misappropriated
$50,000 from a thirteen-year-old customer’s Individual Retirement Account, which
he caused to be lent to him personally.
4. Craffy further exposed several of his customers to large losses by
failing to comply with the Care Obligation imposed on all brokers by Regulation
Best Interest. Craffy knew that his customers’ primary investment goals were often
to preserve their funds, including for short-term uses like paying for educational
expenses or their retirement. But Craffy engaged in excessive trading in at least
four of his customers’ securities accounts, depleting their funds through fees and
commissions that largely benefited him personally. Craffy also engaged in high-risk
trading that was not in his customers’ best interest because it did not match the
customers’ risk profiles and investment objectives and made their assets extremely
vulnerable to risks of loss through concentration and lack of diversification.

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5. As a result of these violations, Craffy’s customers suffered
approximately $1.79 million in realized losses and $1.8 million in unrealized losses.
About $ 1.64   million of the realized losses were fees or commissions, most of which
went to Craffy.
VIOLATIONS
6. By virtue of the foregoing conduct and as alleged further herein, Craffy
has violated Section 17(a) of the Securities Act of 1933 (“Securities Act”) [15 U.S.C.
§ 77q(a)],   Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) [15
U.S.C. § 78j(b)],   and Rules   10b-5 and 15l-1(a)(1) thereunder [17 C.F.R. §§ 240.10b-5
& 240.15l-1(a)(1)].
7. Unless Craffy is restrained and enjoined, he will engage in the acts,
practices, transactions, and courses of business set forth in this Complaint or in
acts, practices, transactions, and courses of business of similar type and object.
NATURE OF THE PROCEEDINGS AND RELIEF SOUGHT
8. The Commission brings this action pursuant to the authority conferred
upon it by Securities Act Sections   20(b) and 20(d) [15 U.S.C. §§ 77t(b) and 77t(d)]
and Exchange Act Section 21(d) [15 U.S.C. §   78u(d)].
9. The Commission seeks a final judgment: (a) permanently enjoining
Craffy from violating the federal securities laws and rules this Complaint alleges he
has violated, pursuant to Securities Act Section 20(b) [15 U.S.C. § 77t(b)] and
Exchange Act Sections   21(d)(1) and (d)(5) [15 U.S.C. §§ 78u(d)(1) and (d)(5)];
(b) ordering Craffy to disgorge all ill  -gotten gains he received as a result of the

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violations alleged here and to pay prejudgment interest thereon, pursuant to
Exchange Act Sections 21(d)(3), 21(d)(5), and 21(d)(7) [15 U.S.C. §§ 78u(d)(3),
78u(d)(5), and 78u(d)(7)]; (c) ordering Craffy to pay civil money penalties pursuant
to Securities Act Section 20(d) [15 U.S.C. § 77t(d)] and Exchange Act Section
21(d)(3) [15 U.S.C. § 78u(d)(3)]; and (d) ordering any other and further relief the
Court may deem just and proper.
JURISDICTION AND VENUE
10. This Court has jurisdiction over this action pursuant to Securities Act
Section 22(a) [15 U.S.C. § 77v(a)] and Exchange Act Section 27 [15 U.S.C. § 78aa].
11. Defendant Craffy, directly and indirectly, has made use of the means
or instrumentalities of interstate commerce or of the mails in connection with the
transactions, acts, practices, and courses of business alleged herein.
12. Venue lies in this District under Securities Act Section 22(a) [15 U.S.C.
§ 77v(a)] and   Exchange Act Section 27 [15 U.S.C. § 78aa]. Defendant Craffy may be
found in, is an inhabitant of, and transacts   business in the District of New Jersey,
and certain of the acts, practices, transactions, and courses of business alleged in
this Complaint occurred within this District, including Craffy’s meeting and
communicating with customers, hiding his activities from his customers, failing to
exercise his obligations under Regulation Best Interest, and receiving commission
payments derived from his unauthorized trading.

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DEFENDANT
13. Craffy, age 40, resides in Colts Neck, New Jersey. Craffy has been a
member of the United States Army Reserves since at least 2003 and is currently a
Major. From November 2017 until January 2023, Craffy was employed full-time as
a Financial Counselor at the U.S. Army’s Fort Dix Survivor Outreach Services
program. Craffy has 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 (“FINRA”), a self-regulatory
organization that oversees U.S. broker-dealers,  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.
OTHER RELEVANT INDIVIDUALS AND ENTITIES
14. Brokerage Firm A is a Virginia corporation with its principal place of
business in Boca Raton, Florida. Brokerage Firm A registered with the SEC as a
broker-dealer in July 2000. Craffy was associated with Brokerage Firm A as a full-
time registered representative from May 2017 through March 2021.
15. Brokerage Firm B is a New Jersey limited liability company with its
principal place of business in Point Pleasant Beach, New Jersey. Brokerage Firm B
registered with the SEC as a broker-dealer in July 2018. Craffy was associated with
Brokerage Firm B as a registered representative from April 2021 through
November 2022.  Brokerage Firm B terminated Craffy in mid-November 2022.
Brokerage Firm B then took over the servicing of his customers’ accounts.

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FACTS
I. GOLD STAR FAMILIES AND CUSTOMERS OF PRIVATE
BROKERAGE FIRMS TRUSTED CRAFFY.

16. Gold Star families are the survivors and loved ones of U.S. military
service members who died during active duty   service, regardless of cause. Certain
Gold Star family members receive survivor benefits, including death benefits and
insurance payments, as a result of their loved one’s death.
17. Because Gold Star families have experienced traumatic losses and may
be relatively financially unsophisticated, the U.S military provides them with
Financial Counselors to furnish guidance and assistance concerning their survivor
benefits.
18. Craffy became a full-time Financial Counselor with the U.S. Army’s
Fort Dix Survivor Outreach Services program in November 2017. In this role,
Craffy was responsible for providing general financial education, counseling, and
support for individuals associated with the U.S. Army, including Gold Star families.
19. Craffy was required by law to disclose outside assets, income, and
arrangements to the U.S. Army. Craffy also at times acknowledged that as a
Financial Counselor he was a “fiduciary” who was “obligated and bound to act in the
best interest of” his customers.
20. At the same time he served the U.S. Army full-time as a Financial
Counselor, Craffy also worked full-time for private brokerage firms. Craffy first was
associated with Brokerage Firm A as a broker (registered representative) from May
2017 through March 2021, and then was associated with Brokerage Firm B as a

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broker (registered representative) from April 2021 through November 2022.
21. As a broker, Craffy received commissions from trades he placed for his
customers who held accounts at Brokerage Firm A and Brokerage Firm B.
22. Craffy caused at least 29 Gold Star family members he met through
his Financial Counselor position to open investment accounts in which trading
would personally benefit him at Brokerage Firm A and Brokerage Firm B.
23. The Gold Star family members placed their trust in Craffy in part
because they were introduced to him through the U.S. military, and certain of them
believed that he would invest their funds in connection with a military-sponsored
program.
24. In an effort to hide his misconduct with the Gold Star families, Craffy
failed to disclose to the Army his positions with Brokerage Firm A and Brokerage
Firm B and the income he received from his work as a broker. He did this despite
being required by law to disclose outside assets, income, and arrangements to the
U.S. Army.
25. As a broker, Craffy also had additional obligations—such as those
imposed by Regulation Best Interest—toward his customers, including the 29 Gold
Star families and two other customers with military ties.
II. CRAFFY FRAUDULENTLY MADE UNAUTHORIZED TRADES IN HIS
CUSTOMERS’ ACCOUNTS AND HID THESE TRADES FROM HIS
CUSTOMERS AND OTHERS.

A. Craffy Deceived Customers into Opening Brokerage Accounts
26. From approximately May 2018 to November 2022, Craffy instructed at
least 31 customers, all of whom had military ties and 29 of whom were Gold Star

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family members, to open accounts with him at either Brokerage Firm A or
Brokerage Firm B.
27. Many of Craffy’s customers were comparatively financially
unsophisticated. Often, they had only recently come into large amounts of money
through the death of a loved one who had served in the U.S. military.
28. Craffy knew that these customers were grieving and often unfamiliar
with stocks and investing.
29. Craffy exploited his customers’ trust by recommending that they invest
the survivor and insurance benefits they received, often totaling about $500,000,
with him personally, sometimes by falsely stating or misleadingly implying that
they were required to do so to take advantage of certain benefits.
B. Craffy Executed Over 1,000 Unauthorized Trades in the
Accounts of 31 Customers
30. Both Brokerage Firm A and Brokerage Firm B prohibited Craffy from
operating discretionary accounts.
31. In addition, Craffy’s customers never gave him written discretionary
authority to conduct transactions in their accounts without prior authorization.
32. As a result, Craffy was not permitted to conduct trades in his
customers’ accounts at either Brokerage Firm A or Brokerage Firm B without
explicit authorization from the customers to make specific trades. Any trades Craffy
did make without his customers’ explicit permission were thus unauthorized.
33. In spite of this prohibition, Craffy purchased and sold securities—

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including certain highly-concentrated
1
 and thus risky investments—without
authorization from his customers.
34. Craffy executed over 1,000 unauthorized trades in accounts, many of
which were Individual Retirement Accounts (“IRAs”), for at least the 31 customers
at Companies A and B listed below:

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 A portfolio where more than 20% of the value is held in a single stock is generally
considered to be overly concentrated, which exposes an investor to significant
company-specific risks.

Account Holder Account Number Broker-Dealer Date Opened
Customer 1  ****3228 Brokerage Firm B 6/7/2021
****2816 Brokerage Firm B 8/5/2021
****2577 Brokerage Firm B 8/5/2021
Customer 2 (child)  ****0486 Brokerage Firm B 6/8/2021
Customer 3 (child)  ****5007 Brokerage Firm B 6/8/2021
Customer 4  ****4052 Brokerage Firm A 2/14/2020
****5687 Brokerage Firm B 6/8/2021
Customer 5  ****4982 Brokerage Firm A 2/18/2020
****4046 Brokerage Firm B 5/11/2021
Customer 6  ****1068 Brokerage Firm B 12/23/2021
Customer 7  ****5523 Brokerage Firm A 10/29/2018
****1990 Brokerage Firm A 11/12/2018
****8442 Brokerage Firm B 4/5/2022
****0221 Brokerage Firm B 6/7/2021
****5281 Brokerage Firm B 4/5/2022
Customer 8  ****9785 Brokerage Firm B 1/17/2022
Customer 9  ****5002 Brokerage Firm B 1/10/2022
Customer 10  ****0779 Brokerage Firm B 4/30/2021
****1926 Brokerage Firm A 2/20/2020
Customer 11  ****7242 Brokerage Firm B 6/18/2021
Customer 12  ****8260 Brokerage Firm B 5/11/2021
****9030 Brokerage Firm B 5/11/2021
****7023 Brokerage Firm A 2/14/2019
****4205 Brokerage Firm A 12/23/2020
****2555 Brokerage Firm A 12/23/2020
Customer 13  ****9541 Brokerage Firm B 5/18/2021
****0621 Brokerage Firm A 7/11/2018
Customer 14  ****8006 Brokerage Firm B 4/30/2021
****0537 Brokerage Firm A 12/21/2020
Customer 15  ****2938 Brokerage Firm A 10/14/2020
****7001 Brokerage Firm B 5/11/2021
Customer 16  ****6962 Brokerage Firm B 5/18/2021
****9185 Brokerage Firm A 12/17/2019
Customer 17  ****7568 Brokerage Firm A 12/17/2019

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35. Craffy knew and recklessly disregarded that his trades in his
customers’ accounts were unauthorized.
36. Among other things, Craffy knew and recklessly disregarded that
Brokerage Firm A ’s policies prohibited him from exercising discretionary authority
over his customers’ accounts.
37. For example, Brokerage Firm A required that Craffy sign a “Monthly
Heightened Supervision Agreement and Attestation” for January 2021. This
document was at least the fourth such agreement that Craffy had been required to
sign at Brokerage Firm A. In it, he acknowledged that “I have not exercised any
discretionary authority over any of my client’s accounts in transaction based
brokerage accounts.”
38. In fact, Craffy had executed dozens of unauthorized trades in his
****8272 Brokerage Firm B 5/11/2021
Customers 18 and 19 ****6496 Brokerage Firm B 7/9/2021
Customer 20 ****5095 Brokerage Firm B 5/21/2021
Customer 21  ****2139 Brokerage Firm B 10/22/2021
Customer 22  ****6104 Brokerage Firm A 11/12/2018
****8857 Brokerage Firm B 2/15/2022
Customers 22 and 23 ****7361 Brokerage Firm B 2/15/2022
Customer 24 ****6749 Brokerage Firm A 12/8/2020
****9973 Brokerage Firm A 5/21/2021
Customer 25  ****9607 Brokerage Firm A 11/26/2018
****4497 Brokerage Firm B 4/30/2021
Customer 26  ****9148 Brokerage Firm A 5/16/2018
****7838 Brokerage Firm B 5/19/2021
Customer 27  ****8403 Brokerage Firm A 7/30/2018
Customer 28  ****4414 Brokerage Firm A 6/4/2019
****0506 Brokerage Firm A 7/28/2020
****6746 Brokerage Firm B 8/5/2021
****4267 Brokerage Firm B 5/19/2021
Customer 29 ****0813 Brokerage Firm B 9/2/2022
Customer 30  ****1490 Brokerage Firm B 5/5/2022
****7571 Brokerage Firm B 4/5/2022
Customer 31  ****9873 Brokerage Firm B 4/5/2022
****4320 Brokerage Firm B 4/5/2022

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customers’ accounts at Brokerage Firm A before falsely signing this attestation on
February 12, 2021, and he continued to execute unauthorized trades thereafter.
39. Craffy also knew and recklessly disregarded that Brokerage Firm B
prohibited discretionary accounts.
40. For example, on December 21, 2021, Craffy signed Brokerage Firm B’s
annual compliance questionnaire, which included a list of “Prohibited Acts” that
representatives like Craffy were “specifically prohibited by firm policy” from
performing. In response to the question, “Do you handle any accounts on a
discretionary basis?,” Craffy marked, “No.”
41. In fact, Craffy had executed dozens of unauthorized trades in his
customers’ accounts at Brokerage Firm B before falsely signing this attestation on
December 21, 2021. Craffy then executed hundreds more unauthorized trades in
customer accounts after acknowledging that doing so was prohibited.
C. Craffy Made Material Misstatements and Omitted Material
Facts about His Unauthorized Trading and Customer Losses.
42. In connection with his trading for the 31 customers, Craffy made false
statements and omitted material facts that would have made statements not
misleading, including the fact of his unauthorized trades, to his customers.
43. In fact, Craffy only communicated with the customers infrequently,
and then often only on personal subjects.
44. Moreover, many of Craffy’s customers were too distraught to deal with
their accounts on a regular basis and trusted Craffy to act on their behalf and in
their best interest.

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45. 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.
46. 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.
47. In addition, Craffy hid account information from some customers,
including by directing that they not look at account statements.
48. 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!”
49. By the time Craffy was terminated by Brokerage Firm B in November
2022, Customer 11 suffered realized losses of more than $86,000, of which more
than $34,000 were commissions that largely went to Craffy.
50. Many of Craffy’s customers suffered realized losses while he was their
broker. In total, the 31 customers listed above suffered realized losses of
approximately $1.79 million, including approximately $1.64 million in fees and
commissions. These commissions were largely paid to Craffy personally. In addition

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to these realized losses, many customers also faced substantial unrealized losses.
After Craffy was terminated by Brokerage Firm B, the accounts of the 31 customers
listed above had unrealized losses totaling approximately $1.8 million.
51. The following four examples illustrate in greater detail Craffy’s
fraudulent unauthorized trading in his customers’ accounts.
1. Craffy made unauthorized trades in Customer 9’s    Roth
IRA account.

52. Customer 9 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.
53. Customer 9 met Craffy through his work as an Army Financial
Counselor approximately two months after her husband’s death.
54. Craffy falsely told Customer 9 that she would have to invest with
Craffy in order to take advantage of certain tax benefits.
55. 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.
56. 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.
57. 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.
58. Customer 9 was not aware that Craffy was supposed to seek her

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authorization before placing trades, and Craffy did not seek Customer 9’s
permission to place trades.
59. All of Craffy’s trades in Customer 9’s account at Brokerage Firm B
were unauthorized.
60. Craffy omitted to disclose material facts, including the fact of his
unauthorized trades in Customer 9’s account, to Customer 9.
61. 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.
2. Craffy made unauthorized trades in brokerage accounts
belonging to two minors.

62. Customer 2 and Customer 3 were both adolescents when their father
passed away, leaving them each approximately $200,000 in death gratuity and
insurance benefits. Because Customer 2 was fourteen years old and Customer 3 was
thirteen, their mother and stepfather managed the funds for their benefit.
63. Craffy met Customer 2 and Customer 3’s mother and stepfather
through his job as an Army Financial Counselor. The mother and stepfather both
had limited investment experience and trusted Craffy because of his position with
the Army.
64. At Craffy’s direction, Customer 2 and Customer 3’s mother and
stepfather caused $175,000 each of the Customers’ $200,000 in benefits to be
directed to separate Roth IRA accounts at Brokerage Firm B, with Craffy as the

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broker.
65. Neither Customer 2’s nor Customer 3’s account was discretionary. As
such, Craffy was required to obtain authorization before conducting any trades in
their accounts.
66. Craffy did not discuss specific trades with Customers 2 and 3, their
mother, or their stepfather before placing trades. Craffy did not receive written
permission from Customers 2 or 3, their mother, or their stepfather before placing
trades.
67. All of Craffy’s trades in Customer 2’s and Customer 3’s accounts at
Brokerage Firm B were unauthorized.
68. Craffy omitted to disclose material facts, including the fact of his
unauthorized trades in Customer 2’s and Customer 3’s accounts, to Customer 2,
Customer 3, their mother, or their stepfather.
69. Craffy also did not disclose that his frequent trading in Customer 2’s
and Customer 3’s accounts was causing the value of each to decrease substantially,
in part through commissions paid to Craffy for each trade. Instead, Craffy told their
mother that factors like the war in Ukraine had caused losses.
70. While Craffy was managing Customer 2’s account at Brokerage Firm
B, Customer 2 suffered realized losses of approximately $76,000, of which about
$42,000 was paid in fees and commissions, most of which went to Craffy. Customer
2 also suffered additional approximate unrealized losses of about $28,000.
71. Due to Craffy’s   unauthorized trades in Customer 3’s account, she paid

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approximately $61,000 in fees and commissions, most of which went to Craffy.
72. Craffy also misappropriated funds from Customer 3, described in
Section III    below, which significantly affected her account’s balances.
3. Craffy made unauthorized trades in Customer 29’s
brokerage account.

73. Customer 29 was a Gold Star family member whose husband passed
away while on active duty.
74. Customer 29 met Craffy shortly thereafter through his work as a
Financial Counselor. She believed that paperwork Craffy provided her was
connected to a free program provided by the Army to widows.
75. Customer 29 had no prior experience with investing, and she trusted
Craffy because he worked for the Army.
76. As a result, Customer 29 opened a Roth IRA account at Brokerage
Firm B that Craffy managed, which she funded with $300,000 in death benefits she
received following the death of her husband.
77. Customer 29’s account was non-discretionary, meaning that Craffy was
required to obtain permission from Customer 29 before placing any trades in her
account.
78. Craffy did not seek Customer 29’s permission to place trades in her
account. Customer 29 was unaware of the specific trades Craffy placed in her
account.
79. All of Craffy’s trades in Customer 29’s account at Brokerage Firm B
were unauthorized.

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80. Craffy omitted to disclose material facts, including the fact of his
trades in Customer 29’s account, to Customer 29.
81. While Craffy was managing Customer 29’s account, Customer 29 paid
approximately $16,000 in fees and commissions, most of which went to Craffy, and
also suffered unrealized losses of approximately $52,000.
82. In sum, Craffy committed securities fraud by conducting unauthorized
trades in 31 customers’ brokerage accounts. Craffy knew or recklessly disregarded
that the trades were unauthorized, and he made false statements and made
material omissions that would have rendered the statement he did make not
misleading, concerning these trades, including the facts of the trades themselves.
III.     CRAFFY MISAPPROPRIATED FUNDS FROM A THIRTEEN-YEAR-
OLD CUSTOMER’S BROKERAGE ACCOUNT.

83. As described above, Customer 3 was thirteen years old when Craffy
managed her Roth IRA account at Brokerage Firm B. Craffy defrauded Customer 3
through a scheme to misappropriate funds from her securities account.
84. Craffy knew and recklessly disregarded that he could not enter into a
financial arrangement with or borrow money from customer accounts.
85. For example, on December 21, 2021, Craffy signed Brokerage Firm B’s
annual compliance questionnaire, in which he confirmed in a section entitled
“Prohibited Acts” that he had never borrowed money from a customer.
86. Nevertheless, Craffy persuaded Customer 3’s mother to provide him
with a personal loan and suggested that he could borrow funds from Customer 3’s
Roth IRA account. He further told Customer 3’s mother that the funds would be

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returned to Customer 3’s Roth IRA within approximately two months such that
Customer 3 would not incur a tax penalty.
87. On or around March 11, 2022, Craffy sold two stocks in Customer 3’s
Roth IRA account, generating sales proceeds of about $85,000.
88. Craffy then directed Customer 3’s mother to withdraw $50,000 from
Customer 3’s Roth IRA account. Craffy signed the retirement account withdrawal
form as the broker on the account. The securities sales that Craffy made on or
around March 11, 2022 funded the $50,000 withdrawal from the account for which
he had signed.
89. Customer 3’s mother used the $50,000 withdrawn from Customer 3’s
Roth IRA account to fund a $50,000 check that she wrote to Craffy, which Craffy
deposited into his personal bank account.
90. Although the word “gift” was written on the check, Craffy told
Customer 3’s mother that the check was a loan that he was characterizing as a gift
for tax purposes.
91. Craffy did not disclose the loan from Customer 3’s Roth IRA account to
Brokerage Firm B.
92. Craffy did not repay the $50,000 from the purported loan to Customer
3’s Roth IRA account. Moreover, the $50,000 was not returned to Customer 3’s Roth
IRA account within the approximately two-month time period that Craffy had
promised when defrauding Customer 3’s mother into loaning him the funds from
Customer 3’s Roth IRA account.

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IV. CRAFFY VIOLATED REGULATION BEST INTEREST’S CARE
OBLIGATION BY EXCESSIVELY TRADING AND OVERLY
CONCENTRATING HIS RETAIL CUSTOMERS’ ACCOUNTS.

A. Regulation Best Interest Requires Brokers Like Craffy to
Exercise Reasonable Diligence, Care, and Skill When Making
Recommendations to Customers.

93. Regulation Best Interest, which became effective on June 30, 2020,
established a standard of conduct for broker-dealers and associated persons
(including registered representatives like Craffy) when they recommend securities
transactions or investment strategies involving securities, including account
recommendations, to retail customers.
94. The SEC issued an adopting release offering guidance on how the
Commission interprets Regulation Best Interest. See Regulation Best Interest: The
Broker-Dealer Standard of Conduct, Exchange Act Release No. 34-86031, 84 Fed.
Reg. 33318 (July 12, 2019) (the “Adopting Release”).
95. The Best Interest Obligation requires a broker, dealer, or a natural
person associated with a broker or dealer, when making a securities-transaction or
investment-strategy recommendation to a retail customer, to act in the best interest
of that retail customer at the time the recommendation is made, without placing the
financial or other interest of the broker, dealer, or associated person ahead of the
interest of the retail customer.
96. Regulation Best Interest defines a retail customer as “a natural
person, or the legal representative of such natural person, who: (i) Receives a
recommendation of any securities transaction or investment strategy involving

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securities from a broker, dealer, or a natural person who is an associated person of a
broker or dealer; and (ii) uses the recommendation primarily for personal, family, or
household purposes.”
97. A registered representative who conducts a trade on behalf of a
customer without that customer’s explicit authorization implicitly recommends the
trades for that customer.
98. The Best Interest Obligation is satisfied only by compliance with four
component obligations: (1) the Disclosure Obligation to provide certain prescribed
disclosure, before or at the time of the recommendation, about the recommendation
and the relationship between the retail customer and the firm, (2) the Care
Obligation to exercise reasonable diligence, care, and skill in making the
recommendation, (3) the Conflict of Interest Obligation to establish, maintain, and
enforce policies and procedures reasonably designed to address conflicts of interest,
and (4) the Compliance Obligation to establish, maintain, and enforce policies and
procedures reasonably designed to achieve compliance with Regulation BI.
99. The Care Obligation requires a broker, dealer, or associated person to
exercise reasonable diligence, care, and skill to “[h]ave a reasonable basis to believe
that the recommendation is in the best interest of a particular retail customer based
on that retail customer’s investment profile and the potential risks, rewards, and
costs associated with the recommendation.”
100. The Adopting Release states that what is in the best interest of a retail
customer depends on the facts and circumstances of the recommendation, including

21
“matching” the recommended security to the retail customer’s investment profile.
Where the match between the retail customer profile and the recommendation
appears less reasonable, it is more important for the broker to establish that it had
a reasonable belief that the recommendation was in the best interest of the retail
customer
101. The Adopting Release states that, in addition to matching the
recommendation to the customer’s suitability profile, a registered representative
should also exercise reasonable diligence, care, and skill to consider reasonably
available alternatives.
102. The Care Obligation, as noted in the Adopting Release, also requires a
broker, dealer, or associated person to exercise reasonable diligence, care, and skill
to “have a reasonable basis to believe that a series of recommended transactions,
even if in the retail customer’s best interest when viewed in isolation, is not
excessive and is in the retail customer’s best interest when taken together in light of
the retail customer’s investment profile.”
103. The Care Obligation applies to a series of recommended transactions,
regardless of whether the broker-dealer exercises actual or de facto control over a
customer’s account.
104. Regulation Best Interest’s Adopting Release specifies that “a ‘series’ of
recommended transactions is an established term under the federal securities laws
and Self-Regulatory Organization rules that is evaluated in concert with existing
guideposts, such as turnover rate, cost-to-equity ratio, and use of in-and-out

22
trading, which have been developed over time and which serve as indicators of
excessive trading.”
105. Craffy was thus prohibited under Regulation Best Interest from
placing his financial or other interests ahead of   his retail customers’ interests.
B. Craffy Did Not Meet His Obligations Under Regulation Best
Interest.

106. Craffy made recommendations to at least six retail customers, through
the numerous trades he conducted in their accounts, without a reasonable basis to
believe these recommendations were in the best interests of his customers.    Craffy
further failed to exercise reasonable diligence, care, and skill in making these
recommendations to his retail customers.
107. Instead, Craffy made many recommendations that placed Craffy’s
interests ahead of his retail customers.
108. Craffy knew that his Gold Star family customers were not only
grieving, but were also facing the loss of a source of income for their family in the
years ahead.
109. Further, Craffy knew that these customers were heavily reliant on the
death gratuity and life insurance payments they had received. These funds were a
significant source of his customers overall assets, and many customers needed to
preserve these funds in the near term for purposes such as their impending
retirement or to provide for their children.
110. As set forth below, Craffy also knew and recklessly disregarded that
the customers’ investment profiles did not match the trades he made.

23
111. Indeed, his customers often wanted and needed to maintain a
conservative trading strategy. Frequently, their Gold Star family benefits were
these customers’ only significant assets.
112. By contrast, Craffy personally benefited from the trades he executed in
these customers’ accounts, in part because he received commission payments on a
per-transaction basis.
113. To enable his risky, high-commission trading strategy, Craffy
presented documents to Brokerage Firm A, Brokerage Firm B, and his customers
that falsely portrayed their financial positions and investment strategies, examples
of which are alleged in more detail in subsections C through G    below. Doing so
enabled Craffy to execute trades that may otherwise have raised red flags.
114. In many cases, at his direction, Craffy’s customers—who were
grappling with the recent loss of a loved one and often found the death benefit funds
upsetting to deal with—signed the documents Craffy presented to them,  trusting
that he had filled them out accurately and without noticing the false
representations that the documents contained.
115. Given the mismatch between his retail customers’ true investment
profiles and the trades Craffy made and the positions he took, Craffy did not
demonstrate reasonable diligence, care, or skill in determining that these actions
were in his customers’ best interests.
116. More specifically, Craffy violated Regulation Best Interest in at least
two ways described below.

24
117. First, Craffy excessively traded in at least four retail customers’
accounts, which incurred high costs, including commissions that were mostly paid
to him, and had a significant impact on the value of his customers’ accounts.
118. Generally, a turnover rate
2
 above 6 and a cost-to-equity ratio
3
 above
20% are recognized as benchmarks for excessive trading.
119. Craffy incurred large fees and commissions through his trading in the
accounts of Customers   9, 2, 3, and 29, all of which had indicators of excessive
trading. This trading was excessive under Regulation Best Interest because, among
other things, it involved a pproximate turnover rates and cost-to-equity ratios above
widely recognized guideposts for excessive trading, as shown below:
Account
Turnover
Rate
Cost-to-
Equity
Ratio Period
Total
Trades
During
Period
Approximate
Commissions and
Fees Paid During
Period
Customer 9  7.1794 24.40%
1/18/22 –
10/31/22 50 $72,682.54
Customer 2  6.3038 24.40%
7/20/21 –
10/31/22 33 $41,790.87
Customer 3  6.2439 26.73%
7/30/21 –
10/31/22 41 $56,114.00
Customer 29 10.4968 38.63%
9/13/22 –
10/31/22 12 $16,212.40

120. Second, for three retail customers from approximately August 2021
through October 2022, Craffy recommended trades that resulted in their accounts

2
 The turnover rate is the measure of the volume of trading that changes the
holdings of a portfolio without changing its size.

3
 The cost-to-equity ratio measures the expenses incurred by a given set of trades
against the total holdings in an account over a period of time.

25
being highly concentrated in one or a small number of corporate-issuer stocks.
These concentration levels and lack of diversification posed significant risk of loss.
Such trades did not match the customers’ investment profiles and were not in the
best interest of Craffy’s customers.
121.  The following examples—each involving retail customers—illustrate
how Craffy’s trading violated Regulation Best Interest through excessive trading,
high concentration, or both.
1. Craffy Excessively Traded in Customer 9’s Brokerage
Account and Exposed Her Funds to High Risks through
Concentration.

122. As described above, Customer 9 was a widow with three children, the
oldest of whom was 13. Customer 9 told Craffy on several occasions that she wanted
the money from her husband’s survivor benefits to be available for her children
when they turned 18.
123. For example, three days before she opened the account at Brokerage
Firm B, Customer 9 wrote to Craffy in a text message, “I want to make sure the
money is available for the kids...to help through college, maybe even set up a small
nest egg for when they finish college, etc.” Customer 9 also noted that her oldest
child would be going to college in five years.
124. Craffy thus knew that Customer 9’s investment profile called for her to
preserve her capital for short-term use.
125. Instead, Craffy presented Customer 9 and Brokerage Firm B with
documents that falsely described her risk tolerance as “aggressive” and stated that
she wanted a “speculative growth” strategy.

26
126. Craffy used these false statements to ensure that Customer 9’s Roth
IRA account would provide him maximum flexibility to execute trades that would
earn him significant commissions.
127. Craffy then engaged   in a series of transactions that excessively traded
Customer 9’s account and did not match her investment profile, but instead put
Craffy’s interest ahead of Customer 9’s best interest.
128.  Specifically, by trading approximately 50 times in less than 10
months, Craffy generated approximately $73,000 in fees and commissions, most of
which he personally received. His excessive trading had a cost-to-equity ratio of
more than 24% and a turnover rate greater than seven for Customer 9’s account.
129. The large fees and commission payments Craffy incurred, the high
turnover rate of the account, and the excessive cost-to-equity ratios of his trading
demonstrate that Craffy did not have a reasonable basis for his recommendations to
Customer 9.
130. Craffy also engaged in a risky investment strategy that concentrated
Customer 9’s account in a small  number of s ingle corporate-issuer stocks.
131. For example, the following table shows how Craffy caused Customer
9’s brokerage account to be highly concentrated in certain stocks at the end of
various months:
Stock Name Month Stock’s Approximate Percentage of
Total Portfolio Assets at Month-End
Stock A July 2022 100.00%
Stock A October 2022 78.05%
Stock A September 2022 76.97%
Stock A Aug 2022 74.13%

27
Stock Name Month Stock’s Approximate Percentage of
Total Portfolio Assets at Month-End
Stock A June 2022 58.24%
Stock B May 2022 52.47%
Stock B March 2022 50.53%
Stock B April 2022 49.40%
Stock B January 2022 47.76%
Stock B February 2022 46.44%
Stock C April 2022 44.28%
Stock C May 2022 42.84%
Stock C March 2022 42.42%
Stock C June 2022 41.80%
Stock D August 2022 25.91%
Stock D September 2022 24.00%
Stock D October 2022 23.35%

132. Price volatility in any one of those stocks in each of the above-listed
months could have caused significant losses for Customer 9. Craffy’s actions thus
exposed Customer 9’s account to great risks from concentration and lack of
diversification, which did not match her investment profile of attempting to
preserve funds for short-term use.
133. Craffy’s excessive trading in Customer 9’s accounts and concentration
of    her funds in single corporate-issuer stocks was inconsistent with Customer 9’s
investment profile and objectives. In doing so,  Craffy failed to exercise reasonable
diligence, care, and skill in making recommendations to Customer 9, failed to have
a reasonable basis for his recommendations, and violated Regulation Best Interest.
2. Craffy Excessively Traded in Customer 2’s and Customer
3’s Brokerage Accounts.

134. As described above, Customers 2 and 3 were minor children when their
father died in active duty, leaving them each with approximately $200,000 in
survivor benefits. Their mother and stepfather opened separate retirement accounts

28
for them at Craffy’s direction and invested $175,000 each of Customer 2’s and
Customer 3’s money. Their mother and stepfather told Craffy that they wanted the
funds they had invested with him to be available for Customers 2 and 3 when they
turned 18. For Customer 2, that would only take four years; Customer 3 would turn
18 in just five years.
135. Thus, Craffy knew that Customer 2’s and Customer 3’s investment
profile required that they preserve their capital for short-term use.
136. Nevertheless, Craffy caused forms to be submitted to Brokerage Firm
B that contained a number of false statements.
137. First, Craffy listed both Customer 2 and Customer 3 as having a net
worth of $750,000 and a liquid net worth of $600,000.
138. These figures were wildly inaccurate, as Craffy knew, because
Customer 2’s and Customer 3’s assets each largely consisted of their father’s
$200,000 death benefits.
139. In addition, Craffy falsely listed Customer 2’s and Customer 3’s
investment habits as “primary debt payment.” Neither Customer 2 nor Customer 3
had any significant debt.
140. Craffy further falsely listed Customer 2’s and Customer 3’s risk
tolerance as “aggressive,” their investment objectives as “Maximum Growth,” and
their strategy as “speculative growth.” In fact, Craffy knew that each of these
statements was false, because Customer 2 and Customer 3’s mother and stepfather
had explained to Craffy that Customers 2 and 3 would need to save this money for

29
use in a few years.
141. Craffy used the false statements on Customer 2’s and Customer 3’s
investment documents to ensure that their Roth IRA accounts would provide him
maximum flexibility to execute trades that would earn him significant commissions.
142. Craffy then engaged in a series of excessive trades in Customer 2’s and
Customer 3’s accounts that put his interests ahead of their best interest.
143. Specifically, in a period of just over three months, Craffy conducted
approximately 33 trades in Customer 2’s brokerage account. The turnover rate for
this period was greater than 6.3 and the cost-to-  equity ratio for the trades was
greater than 24%. Craffy’s trades generated more than $41,000 in fees and
commissions, most of which went to him.
144. Likewise, in a three-month period, Craffy made about 41 trades in
Customer 3’s brokerage account, resulting in a turnover rate of greater than 6.2 and
a cost-to-equity ratio of greater than 26%. These trades cost Customer 3 more than
$56,000 in fees and commissions, most of which went to Craffy.
145. Under the well-recognized guideposts of excessive trading—a turnover
rate above 6 and a cost-to-equity ratio of 20%—Craffy’s trades in Customer 2’s and
Customer 3’s accounts were excessive. There was no reasonable basis for Craffy to
conduct these series of trades, and doing so cost Customers 2 and 3 fees and
commissions of more than $90,000.
146. The high turnover rates and the excessive cost-to-equity ratios in the
accounts show that Craffy failed in his obligations under Regulation Best Interest

30
to retail Customers 2 and 3. Instead, Craffy caused them to incur large fees and
commissions, thereby putting his interest ahead of the best interests of Customer 2
and 3 in violation of Regulation Best Interest.
3. Craffy Excessively Traded in Customer 29’s Brokerage
Account and Exposed Her Funds to High Risks through
Concentration.

147. When Customer 29 met Craffy, she was recently widowed with a
seven-year-old son and was living with her in-laws until she could get enough
money to move out into her own apartment, all of which was known to Craffy.
Customer 29 believed that Craffy’s services were a free Army program offered to her
as a widow, and she had no idea that Craffy was working for a private company
unrelated to the Army.
148. Customer 29 told Craffy that she wanted to save the money she was
investing to be available for her son’s use. Customer 29 had no prior experience
with investing and was not comfortable with the risk of losing her entire savings.
149. Craffy knew that Customer 29’s investment needs were to preserve her
capital and that pursuing risky strategies did not match her investment profile.
150. Nevertheless, Craffy presented Customer 29 and Brokerage Firm B
with documents that falsely described Customer 29’s   risk tolerance as “Maximum
Growth” and stated that she wanted a “speculative growth” strategy. Craffy also
falsely represented that Customer 29’s net worth was $750,000, when in fact, he
well knew, it was significantly lower.
151. Craffy used these false statements to ensure that Customer 29’s   Roth
IRA account would provide him flexibility to execute trades that would earn him

31
significant commissions.
152. Craffy then engaged in a series of transactions that excessively traded
Customer 29’s accounts and did not match her investment profile.
153. Specifically, in just six weeks, Craffy executed approximately 12 trades
that cost Customer 29 about $16,000 in fees and commissions, most of which were
paid to him. The trades represented a cost-to-equity ratio of more than 36% and a
turnover rate of approximately ten.
154. The large fees and commissions Craffy caused Customer 29 to pay, the
high turnover rate of the account, and the excessive cost-to-equity ratios of his
trading demonstrate that Craffy did not have a reasonable basis for his
recommendations to Customer 29.
155. Instead, Craffy put his personal interests ahead of Customer 29’s best
interest, causing her to pay fees and commissions of more than $16,000 in less than
two months, most of which went to him personally.
156. Craffy also engaged in a risky investment strategy that concentrated
Customer 29’s account in a small number of single corporate-issuer stocks.
157. For example, in September 2022 Craffy caused almost all of the funds
in Customer 29’s   Roth IRA account to be held in just two stocks.
158. Concentrating almost all of her funds in two stocks placed Customer
29’s funds at great risk and did not match Customer 29’s investment profile. Indeed,
Customer 29’s accounts realized losses from the sale of one of these stocks shortly
after Craffy was terminated from Brokerage Firm B in November 2022.

32
159. Given her investment profile, there was no reasonable basis for Craffy
to concentrate almost all of Customer 29’s funds in just two stocks.
160. Excessively trading in Customer 29’s accounts and concentrating her
funds in single corporate-issuer stocks exposed Customer 29 to a higher risk of loss
and did not match her investment profile. In doing so, Craffy failed to exercise
reasonable diligence, care, and skill in making recommendations to Customer 29,
failed to have a reasonable basis for his recommendations, and violated Regulation
Best Interest.
4. Craffy Exposed Customer 25’s Brokerage Account to a
High Risk through Concentration.

161. Customer 25 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.
162. Customer 25 had no investment experience before receiving these
benefits and trusted Craffy because the Army had assigned him to help her.
163. Craffy directed Customer 25 to open an account at Brokerage Firm B.
164. Craffy knew that Customer 25 was retired, had a fixed income, and
needed to preserve her capital. Forms that Craffy presented to Brokerage Firm B
listed Customer 25’s risk tolerance as moderate and her investment goal as “Income
and Growth,” meaning “I want my investments to produce a steady stream of
income and growth without major declines in value.”
165. In spite of Customer 25’s need, as a retiree, to preserve her capital,
Craffy caused her brokerage account to be highly concentrated in a small number of

33
single corporate-issuer stocks, as set forth below:
Stock Name Month Stock’s Percentage of Total
Portfolio Assets at Month-End
Stock D October 2022 107.06%
4

Stock E September 2022 102.63%
Stock F June 2022 100.00%
Stock E August 2022 100.00%
Stock G  May 2022 55.74%
Stock H November 2021 55.24%
Stock H December 2021 52.90%
Stock G April 2022 49.99%
Stock H October 2021 48.90%
Stock H January 2022 42.47%
Stock H March 2022 36.64%
Stock H May 2022 36.31%
Stock H February 2022 33.56%
Stock H April 2022 28.83%
Stock I September 2021 28.03%
Stock I August 2021 26.03%

166. Price volatility in any one of those stocks in each of the above-listed
months could have caused significant losses for Customer 25, depleting her
retirement capital. Craffy’s actions thus exposed Customer 25’s account to great
risks. Given her investment profile, there was no reasonable basis for Craffy to
concentrate Customer 25’s funds as reflected above.
167. Craffy recommended trades that concentrated Customer 25’s assets in
single corporate-issuer stocks, lacked diversification, and did not match Customer
25’s investment profile or objectives. Craffy failed to exercise reasonable diligence,
care, and skill in making recommendations to Customer 25, and thus violated

4
 Concentration percentages at month-end in excess of 100% are due to the account
also holding a short position in the same stock through an options trade. That
resulted in the account having month-end total portfolio assets that were less than
the value of the stock held.

34
Regulation Best Interest.
5. Craffy Exposed Customer 8’s Brokerage Account to a
High Risk through Concentration.

168. Customer 8 lost her husband while he was on active-duty service in the
U.S. Army. She met Craffy in his role as Financial Counselor.
169. Craffy directed Customer 8 to open an account at Brokerage Firm B.
170. At Craffy’s direction, Customer 8 invested approximately $340,000 of
the survivor benefits and insurance payments she received as a result of her
husband’s death.
171. When she opened the investment account with Craffy, Customer 8 had
a six-year-old daughter and was unable to obtain life insurance herself due to a
medical condition. Thus, she told Craffy she wanted the funds she invested through
him to be available to her daughter should Customer 8 pass away.
172. In spite of this disclosed need, Craffy prepared contradictory forms on
Customer 8’s behalf. On one, he accurately listed her investment goal as
“Conservative Growth . . . I’m willing to accept a lower return to avoid risk of a
major decline in the value of my investments.” On another form, he falsely stated
that her goal was “Maximum Growth: Maximum capital appreciation with higher
risk and little to no income.”  Craffy also falsely listed Customer 8’s income on
account forms as higher than it actually was.
173. Craffy disregarded Customer 8’s true investment profile in making
trades in her account. He caused her Roth IRA account to be highly concentrated in
a small number of single corporate-issuer stocks, as set forth below:

35
Stock
Name
Month Stock’s Approximate Percentage of
Total Portfolio Assets at Month-End
Stock D October 2022 106.78%
Stock D September 2022 101.93%
Stock D August 2022 100.00%
Stock J July 2022 100.00%
Stock K June 2022 39.39%
Stock K May 2022 34.91%
Stock K March 2022 34.88%
Stock K February 2022 32.70%
Stock K April 2022 31.96%
Stock L February 2022 28.70%
Stock M March 2022 26.94%
Stock M April 2022 25.02%
Stock L April 2022 24.96%
Stock N June 2022 24.88%
Stock L May 2022 24.18%
Stock L March 2022 22.75%
Stock N May 2022 21.40%

174. Price volatility in any one of those stocks in each of the above-listed
months could have caused significant losses for Customer 8. Craffy’s actions thus
exposed Customer 8’s account to great risks. Given her investment profile, there
was no reasonable basis for Craffy to concentrate Customer 8’s funds as shown
above.
175.  Craffy recommended trades that concentrated Customer 8’s assets in
single corporate-issuer stocks, lacked diversification, and did not match Customer
8’s investment profile or objectives. Craffy failed to exercise reasonable diligence,
care, and skill in making recommendations to Customer 8, and thus violated
Regulation Best Interest.
176. Based on the foregoing, Craffy violated Regulation Best Interest by
failing to exercise reasonable diligence, care, and skill and to have a reasonable

36
basis to believe that his recommendations were in the best interest of his retail
customers, based on those customers’ investment profiles and the potential risks,
rewards, and costs associated with Craffy’s recommendations.
FIRST CLAIM FOR RELIEF
Violations of Securities Act Section 17(a)

177. The Commission re-alleges and incorporates by reference here the
allegations in paragraphs 1 through 92.
178. Defendant Craffy, directly or indirectly, singly or in concert, in the
offer or sale of securities and by the use of the means or instruments of
transportation or communication in interstate commerce or the mails, (1) knowingly
or recklessly employed one or more devices, schemes or artifices to defraud, (2)
knowingly, recklessly, or negligently obtained money or property by means of one or
more untrue statements of a material fact or omissions of a material fact necessary
in order to make the statements made, in light of the circumstances under which
they were made, not misleading, and/or (3) knowingly, recklessly, or negligently
engaged in one or more transactions, practices, or courses of business which
operated or would operate as a fraud or deceit upon the purchaser.
179. By reason of the foregoing, Defendant Craffy, directly or indirectly,
singly or in concert, violated and, unless enjoined, will again violate Securities Act
Section 17(a) [15 U.S.C. § 77q(a)].
SECOND CLAIM FOR RELIEF
Violations of Exchange Act Section 10(b) and Rule 10b-5 Thereunder

180. The Commission re-alleges and incorporates by reference here the

37
allegations in paragraphs 1 through 92.
181. Defendant Craffy, directly or indirectly, singly or in concert, in
connection with the purchase or sale of securities and by the use of means or
instrumentalities of interstate commerce, or the mails, or the facilities of a national
securities exchange, knowingly or recklessly (i) employed one or more devices,
schemes, or artifices to defraud, (ii) made one or more untrue statements of a
material fact or omitted to state one or more material facts necessary in order to
make the statements made, in light of the circumstances under which they were
made, not misleading, and/or (iii) engaged in one or more acts, practices, or courses
of business which operated or would operate as a fraud or deceit upon other
persons.
182. By reason of the foregoing, Defendant Craffy, directly or indirectly,
singly or in concert, violated and, unless enjoined, will again violate Exchange Act
Section 10(b) [15 U.S.C. § 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5].
THIRD CLAIM FOR RELIEF
Violations of Regulation Best Interest’s General Obligation
183. The Commission re-alleges and incorporates by reference here the
allegations in paragraphs 1 through 25 and 93 through 176.
184. By engaging in the conduct described above, when making
recommendations of securities transactions to retail customers, Defendant Craffy
failed to act in the best interest of the retail customers by failing to exercise
reasonable diligence, care, and skill to understand the potential risks, rewards, and
costs associated with the recommendation.

38
185. Also, by engaging in the conduct described above, Defendant Craffy
made recommendations to retail customers without exercising reasonable diligence,
care, and skill to have a reasonable basis to believe the recommendations were in
the best interests of the particular retail customer based on that retail customer’s
investment profile and the potential risks, rewards, and costs associated with the
recommendation.
186. The failure of Defendant Craffy to comply with Regulation Best
Interest’s Care Obligation constitutes a violation of Regulation Best Interest’s
General Obligation.
187. By reason of the foregoing, Defendant Craffy violated and, unless
enjoined, will again violate Rule 15l-1(a)(1) of the Exchange Act [17 C.F.R.
§ 240.15l-1(a)(1)].
PRAYER FOR RELIEF
 WHEREFORE, the Commission respectfully requests that the Court enter a
Final Judgment:
I.
Permanently enjoining Defendant Craffy from violating, directly or
indirectly, Securities Act Section 17(a) [15 U.S.C. § 77q(a)], Exchange Act Section
10(b) [15 U.S.C. § 78j(b)], and Rules 10b-5 and 15l-1(a)(1) [17 C.F.R. §§ 240.10b-5
and 240.15l-1(a)(1)];
II.
Ordering Defendant Craffy to disgorge all ill-gotten gains he received directly

39
or indirectly, with pre-judgment interest thereon, as a result of the alleged
violations, pursuant to Exchange Act Sections 21(d)(3), 21(d)(5), and 21(d)(7) [15
U.S.C. §§ 78u(d)(3), 78u(d)(5), and 78u(d)(7)];
III.
Ordering Defendant Craffy to pay civil monetary penalties under Securities
Act Section 20(d) [15 U.S.C. § 77t(d)] and Exchange Act Section 21(d)(3) [15 U.S.C.
§   78u(d)(3)]; and
IV.
Granting any other and further relief this Court may deem just and proper.

40
JURY DEMAND
 Pursuant to Rule 38 of the Federal Rules of Civil Procedure, the Commission
demands that this case be tried before a jury.

      /s/ Antonia M. Apps
ANTONIA M. APPS
REGIONAL DIRECTOR
Sheldon Pollock
Hane L. Kim
Hayden M. Brockett
Michael C. Ellis
Bari R. Nadworny
Ariel Atlas
Attorneys for Plaintiff
SECURITIES AND EXCHANGE COMMISSION
New York Regional Office
100 Pearl Street
Suite 20-100
New York, NY 10004-2616
212-336-9107 (Brockett)
[email protected]

Date: Trenton, New Jersey
July 7, 2023

41
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY

SECURITIES AND EXCHANGE
COMMISSION,
                                             Plaintiff,
                        v.

CAZ L. CRAFFY
a/k/a CARZ LEVINSKI CRAFFEY

                                             Defendant

Civil Action No. 23-CV-3639

JURY TRIAL DEMANDED

      DESIGNATION OF AGENT
      FOR SERVICE

Pursuant to Local Rule 101.1(f), because the Securities and Exchange
Commission (the “Commission”) does not have an office in this district, the United
States Attorney for the District of New Jersey is hereby designated as eligible as an
alternative to the Commission to receive service of all notices or papers in the
captioned action. Therefore, service upon the United States or its authorized
designee, Matthew J. Mailloux, Assistant United   States Attorney, Civil Division,
United States Attorney’s Office for the District of New Jersey, 970 Broad Street, 7th
Floor, Newark, NJ 07102, shall constitute Service upon the Commission for
purposes of this action.

42
Date: July 7 , 2023          /s/ Antonia M. Apps
ANTONIA M. APPS
REGIONAL DIRECTOR
Sheldon Pollock
Hane L. Kim
Hayden M. Brockett
Michael Ellis
Bari R. Nadworny
Ariel Atlas

Attorneys for Plaintiff:
SECURITIES AND EXCHANGE COMMISSION
New York Regional Office
100 Pearl Street
Suite 20-100
New York, NY 10004-2616
212-336-9107 (Brockett)
[email protected]

IN THE UNITED STATES DISTRICT COURT 
FOR THE DISTRICT OF NEW JERSEY 

 
SECURITIES AND EXCHANGE 
COMMISSION,  
 
                                             Plaintiff, 
 
                        v. 
 
CAZ L. CRAFFY 
a/k/a CARZ LEVINSKI CRAFFEY, 
   
                                             Defendant. 
 

 
 
Civil Action No. 23-CV-3639  

   
   

JURY TRIAL DEMANDED 
  

           
          

 
Plaintiff Securities and Exchange Commission (“SEC” or “Commission”), 100 

Pearl St., Suite 20-100, New York, New York, 10004, files this complaint against 

Caz L. Craffy, also known as Carz Levinski Craffey (“Craffy”), 4 Country Club Lane, 

Colts Neck, New Jersey, 07722, and alleges as follows: 

SUMMARY OF THE ACTION 

1. Caz Craffy abused a position of trust to violate the antifraud provisions 

and Regulation Best Interest of the federal securities laws.  

2. From November 2017 through January 2023, Craffy worked full-time 

as a U.S. Army Financial Counselor, tasked in part with helping Gold Star families 

who had received survivor and insurance payments of as much as $500,000 because 

a family member had died while on active duty. Concurrently, Craffy also worked 

full-time as a broker for private brokerage firms, but failed to disclose these 

positions to the Army as required by law and ethics rules. Craffy then defrauded 

grieving families to enrich himself. 

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3. Craffy exploited the heartache and relative lack of financial 

sophistication of at least 29 Gold Star family customers to direct that they transfer 

funds to brokerage accounts under his control. Craffy subsequently engaged in 

unauthorized trading in these and two other customers’ accounts, which led to large 

commission payments for him and often to large losses for his customers. None of 

these accounts was discretionary, meaning that Craffy could only conduct trades 

with his customers’ explicit approval. Yet Craffy repeatedly traded without his 

customers’ permission and hid his trades from them, including by directing that 

customers not look at their account statements. Craffy also misappropriated 

$50,000 from a thirteen-year-old customer’s Individual Retirement Account, which 

he caused to be lent to him personally.  

4. Craffy further exposed several of his customers to large losses by 

failing to comply with the Care Obligation imposed on all brokers by Regulation 

Best Interest. Craffy knew that his customers’ primary investment goals were often 

to preserve their funds, including for short-term uses like paying for educational 

expenses or their retirement. But Craffy engaged in excessive trading in at least 

four of his customers’ securities accounts, depleting their funds through fees and 

commissions that largely benefited him personally. Craffy also engaged in high-risk 

trading that was not in his customers’ best interest because it did not match the 

customers’ risk profiles and investment objectives and made their assets extremely 

vulnerable to risks of loss through concentration and lack of diversification. 

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5. As a result of these violations, Craffy’s customers suffered 

approximately $1.79 million in realized losses and $1.8 million in unrealized losses. 

About $1.64 million of the realized losses were fees or commissions, most of which 

went to Craffy.  

VIOLATIONS 

6. By virtue of the foregoing conduct and as alleged further herein, Craffy 

has violated Section 17(a) of the Securities Act of 1933 (“Securities Act”) [15 U.S.C. 

§ 77q(a)], Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) [15 

U.S.C. § 78j(b)], and Rules 10b-5 and 15l-1(a)(1) thereunder [17 C.F.R. §§ 240.10b-5 

& 240.15l-1(a)(1)]. 

7. Unless Craffy is restrained and enjoined, he will engage in the acts, 

practices, transactions, and courses of business set forth in this Complaint or in 

acts, practices, transactions, and courses of business of similar type and object.   

NATURE OF THE PROCEEDINGS AND RELIEF SOUGHT 

8. The Commission brings this action pursuant to the authority conferred 

upon it by Securities Act Sections 20(b) and 20(d) [15 U.S.C. §§ 77t(b) and 77t(d)] 

and Exchange Act Section 21(d) [15 U.S.C. § 78u(d)].  

9. The Commission seeks a final judgment: (a) permanently enjoining 

Craffy from violating the federal securities laws and rules this Complaint alleges he 

has violated, pursuant to Securities Act Section 20(b) [15 U.S.C. § 77t(b)] and 

Exchange Act Sections 21(d)(1) and (d)(5) [15 U.S.C. §§ 78u(d)(1) and (d)(5)]; 

(b) ordering Craffy to disgorge all ill-gotten gains he received as a result of the 

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violations alleged here and to pay prejudgment interest thereon, pursuant to 

Exchange Act Sections 21(d)(3), 21(d)(5), and 21(d)(7) [15 U.S.C. §§ 78u(d)(3), 

78u(d)(5), and 78u(d)(7)]; (c) ordering Craffy to pay civil money penalties pursuant 

to Securities Act Section 20(d) [15 U.S.C. § 77t(d)] and Exchange Act Section 

21(d)(3) [15 U.S.C. § 78u(d)(3)]; and (d) ordering any other and further relief the 

Court may deem just and proper.  

JURISDICTION AND VENUE 

10. This Court has jurisdiction over this action pursuant to Securities Act 

Section 22(a) [15 U.S.C. § 77v(a)] and Exchange Act Section 27 [15 U.S.C. § 78aa].  

11. Defendant Craffy, directly and indirectly, has made use of the means 

or instrumentalities of interstate commerce or of the mails in connection with the 

transactions, acts, practices, and courses of business alleged herein. 

12. Venue lies in this District under Securities Act Section 22(a) [15 U.S.C. 

§ 77v(a)] and Exchange Act Section 27 [15 U.S.C. § 78aa]. Defendant Craffy may be 

found in, is an inhabitant of, and transacts business in the District of New Jersey, 

and certain of the acts, practices, transactions, and courses of business alleged in 

this Complaint occurred within this District, including Craffy’s meeting and 

communicating with customers, hiding his activities from his customers, failing to 

exercise his obligations under Regulation Best Interest, and receiving commission 

payments derived from his unauthorized trading. 

 

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DEFENDANT 

13. Craffy, age 40, resides in Colts Neck, New Jersey. Craffy has been a 

member of the United States Army Reserves since at least 2003 and is currently a 

Major. From November 2017 until January 2023, Craffy was employed full-time as 

a Financial Counselor at the U.S. Army’s Fort Dix Survivor Outreach Services 

program. Craffy has 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 (“FINRA”), a self-regulatory 

organization that oversees U.S. broker-dealers, 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. 

OTHER RELEVANT INDIVIDUALS AND ENTITIES 

14. Brokerage Firm A is a Virginia corporation with its principal place of 

business in Boca Raton, Florida. Brokerage Firm A registered with the SEC as a 

broker-dealer in July 2000. Craffy was associated with Brokerage Firm A as a full-

time registered representative from May 2017 through March 2021. 

15. Brokerage Firm B is a New Jersey limited liability company with its 

principal place of business in Point Pleasant Beach, New Jersey. Brokerage Firm B 

registered with the SEC as a broker-dealer in July 2018. Craffy was associated with 

Brokerage Firm B as a registered representative from April 2021 through 

November 2022. Brokerage Firm B terminated Craffy in mid-November 2022. 

Brokerage Firm B then took over the servicing of his customers’ accounts.  

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FACTS 

I. GOLD STAR FAMILIES AND CUSTOMERS OF PRIVATE 
BROKERAGE FIRMS TRUSTED CRAFFY. 

 
16. Gold Star families are the survivors and loved ones of U.S. military 

service members who died during active duty service, regardless of cause. Certain 

Gold Star family members receive survivor benefits, including death benefits and 

insurance payments, as a result of their loved one’s death. 

17. Because Gold Star families have experienced traumatic losses and may 

be relatively financially unsophisticated, the U.S military provides them with 

Financial Counselors to furnish guidance and assistance concerning their survivor 

benefits. 

18. Craffy became a full-time Financial Counselor with the U.S. Army’s 

Fort Dix Survivor Outreach Services program in November 2017. In this role, 

Craffy was responsible for providing general financial education, counseling, and 

support for individuals associated with the U.S. Army, including Gold Star families.  

19. Craffy was required by law to disclose outside assets, income, and 

arrangements to the U.S. Army. Craffy also at times acknowledged that as a 

Financial Counselor he was a “fiduciary” who was “obligated and bound to act in the 

best interest of” his customers.  

20. At the same time he served the U.S. Army full-time as a Financial 

Counselor, Craffy also worked full-time for private brokerage firms. Craffy first was 

associated with Brokerage Firm A as a broker (registered representative) from May 

2017 through March 2021, and then was associated with Brokerage Firm B as a 

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broker (registered representative) from April 2021 through November 2022.  

21. As a broker, Craffy received commissions from trades he placed for his 

customers who held accounts at Brokerage Firm A and Brokerage Firm B.  

22. Craffy caused at least 29 Gold Star family members he met through 

his Financial Counselor position to open investment accounts in which trading 

would personally benefit him at Brokerage Firm A and Brokerage Firm B. 

23. The Gold Star family members placed their trust in Craffy in part 

because they were introduced to him through the U.S. military, and certain of them 

believed that he would invest their funds in connection with a military-sponsored 

program. 

24. In an effort to hide his misconduct with the Gold Star families, Craffy 

failed to disclose to the Army his positions with Brokerage Firm A and Brokerage 

Firm B and the income he received from his work as a broker. He did this despite 

being required by law to disclose outside assets, income, and arrangements to the 

U.S. Army. 

25. As a broker, Craffy also had additional obligations—such as those 

imposed by Regulation Best Interest—toward his customers, including the 29 Gold 

Star families and two other customers with military ties. 

II. CRAFFY FRAUDULENTLY MADE UNAUTHORIZED TRADES IN HIS 
CUSTOMERS’ ACCOUNTS AND HID THESE TRADES FROM HIS 
CUSTOMERS AND OTHERS. 

 
A. Craffy Deceived Customers into Opening Brokerage Accounts 

26. From approximately May 2018 to November 2022, Craffy instructed at 

least 31 customers, all of whom had military ties and 29 of whom were Gold Star 

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family members, to open accounts with him at either Brokerage Firm A or 

Brokerage Firm B.   

27. Many of Craffy’s customers were comparatively financially 

unsophisticated. Often, they had only recently come into large amounts of money 

through the death of a loved one who had served in the U.S. military.  

28. Craffy knew that these customers were grieving and often unfamiliar 

with stocks and investing.   

29. Craffy exploited his customers’ trust by recommending that they invest 

the survivor and insurance benefits they received, often totaling about $500,000, 

with him personally, sometimes by falsely stating or misleadingly implying that 

they were required to do so to take advantage of certain benefits. 

B. Craffy Executed Over 1,000 Unauthorized Trades in the 
Accounts of 31 Customers  

30. Both Brokerage Firm A and Brokerage Firm B prohibited Craffy from 

operating discretionary accounts.  

31. In addition, Craffy’s customers never gave him written discretionary 

authority to conduct transactions in their accounts without prior authorization.  

32. As a result, Craffy was not permitted to conduct trades in his 

customers’ accounts at either Brokerage Firm A or Brokerage Firm B without 

explicit authorization from the customers to make specific trades. Any trades Craffy 

did make without his customers’ explicit permission were thus unauthorized. 

33. In spite of this prohibition, Craffy purchased and sold securities—

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including certain highly-concentrated1 and thus risky investments—without 

authorization from his customers.  

34. Craffy executed over 1,000 unauthorized trades in accounts, many of 

which were Individual Retirement Accounts (“IRAs”), for at least the 31 customers 

at Companies A and B listed below: 

                                                 
1 A portfolio where more than 20% of the value is held in a single stock is generally 
considered to be overly concentrated, which exposes an investor to significant 
company-specific risks. 

Account Holder Account Number Broker-Dealer Date Opened 
Customer 1  ****3228 Brokerage Firm B 6/7/2021 

****2816 Brokerage Firm B 8/5/2021 
****2577 Brokerage Firm B 8/5/2021 

Customer 2 (child)  ****0486 Brokerage Firm B 6/8/2021 
Customer 3 (child)  ****5007 Brokerage Firm B 6/8/2021 
Customer 4  ****4052 Brokerage Firm A 2/14/2020 

****5687 Brokerage Firm B 6/8/2021 
Customer 5  ****4982 Brokerage Firm A 2/18/2020 

****4046 Brokerage Firm B 5/11/2021 
Customer 6  ****1068 Brokerage Firm B 12/23/2021 
Customer 7  ****5523 Brokerage Firm A 10/29/2018 

****1990 Brokerage Firm A 11/12/2018 
****8442 Brokerage Firm B 4/5/2022 
****0221 Brokerage Firm B 6/7/2021 
****5281 Brokerage Firm B 4/5/2022 

Customer 8  ****9785 Brokerage Firm B 1/17/2022 
Customer 9  ****5002 Brokerage Firm B 1/10/2022 
Customer 10  ****0779 Brokerage Firm B 4/30/2021 

****1926 Brokerage Firm A 2/20/2020 
Customer 11  ****7242 Brokerage Firm B 6/18/2021 
Customer 12  ****8260 Brokerage Firm B 5/11/2021 

****9030 Brokerage Firm B 5/11/2021 
****7023 Brokerage Firm A 2/14/2019 
****4205 Brokerage Firm A 12/23/2020 
****2555 Brokerage Firm A 12/23/2020 

Customer 13  ****9541 Brokerage Firm B 5/18/2021 
****0621 Brokerage Firm A 7/11/2018 

Customer 14  ****8006 Brokerage Firm B 4/30/2021 
****0537 Brokerage Firm A 12/21/2020 

Customer 15  ****2938 Brokerage Firm A 10/14/2020 
****7001 Brokerage Firm B 5/11/2021 

Customer 16  ****6962 Brokerage Firm B 5/18/2021 
****9185 Brokerage Firm A 12/17/2019 

Customer 17  ****7568 Brokerage Firm A 12/17/2019 

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35. Craffy knew and recklessly disregarded that his trades in his 

customers’ accounts were unauthorized. 

36. Among other things, Craffy knew and recklessly disregarded that 

Brokerage Firm A’s policies prohibited him from exercising discretionary authority 

over his customers’ accounts.  

37. For example, Brokerage Firm A required that Craffy sign a “Monthly 

Heightened Supervision Agreement and Attestation” for January 2021. This 

document was at least the fourth such agreement that Craffy had been required to 

sign at Brokerage Firm A. In it, he acknowledged that “I have not exercised any 

discretionary authority over any of my client’s accounts in transaction based 

brokerage accounts.” 

38. In fact, Craffy had executed dozens of unauthorized trades in his 

****8272 Brokerage Firm B 5/11/2021 
Customers 18 and 19 ****6496 Brokerage Firm B 7/9/2021 
Customer 20 ****5095 Brokerage Firm B 5/21/2021 
Customer 21  ****2139 Brokerage Firm B 10/22/2021 
Customer 22  ****6104 Brokerage Firm A 11/12/2018 

****8857 Brokerage Firm B 2/15/2022 
Customers 22 and 23 ****7361 Brokerage Firm B 2/15/2022 
Customer 24 ****6749 Brokerage Firm A 12/8/2020 

****9973 Brokerage Firm A 5/21/2021 
Customer 25  ****9607 Brokerage Firm A 11/26/2018 

****4497 Brokerage Firm B 4/30/2021 
Customer 26  ****9148 Brokerage Firm A 5/16/2018 

****7838 Brokerage Firm B 5/19/2021 
Customer 27  ****8403 Brokerage Firm A 7/30/2018 
Customer 28  ****4414 Brokerage Firm A 6/4/2019 

****0506 Brokerage Firm A 7/28/2020 
****6746 Brokerage Firm B 8/5/2021 
****4267 Brokerage Firm B 5/19/2021 

Customer 29 ****0813 Brokerage Firm B 9/2/2022 
Customer 30  ****1490 Brokerage Firm B 5/5/2022 

****7571 Brokerage Firm B 4/5/2022 
Customer 31  ****9873 Brokerage Firm B 4/5/2022 

****4320 Brokerage Firm B 4/5/2022 

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customers’ accounts at Brokerage Firm A before falsely signing this attestation on 

February 12, 2021, and he continued to execute unauthorized trades thereafter.   

39. Craffy also knew and recklessly disregarded that Brokerage Firm B 

prohibited discretionary accounts.  

40. For example, on December 21, 2021, Craffy signed Brokerage Firm B’s 

annual compliance questionnaire, which included a list of “Prohibited Acts” that 

representatives like Craffy were “specifically prohibited by firm policy” from 

performing. In response to the question, “Do you handle any accounts on a 

discretionary basis?,” Craffy marked, “No.”  

41. In fact, Craffy had executed dozens of unauthorized trades in his 

customers’ accounts at Brokerage Firm B before falsely signing this attestation on 

December 21, 2021. Craffy then executed hundreds more unauthorized trades in 

customer accounts after acknowledging that doing so was prohibited. 

C. Craffy Made Material Misstatements and Omitted Material 
Facts about His Unauthorized Trading and Customer Losses. 

42. In connection with his trading for the 31 customers, Craffy made false 

statements and omitted material facts that would have made statements not 

misleading, including the fact of his unauthorized trades, to his customers.  

43. In fact, Craffy only communicated with the customers infrequently, 

and then often only on personal subjects. 

44. Moreover, many of Craffy’s customers were too distraught to deal with 

their accounts on a regular basis and trusted Craffy to act on their behalf and in 

their best interest. 

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45. 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. 

46. 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.  

47. In addition, Craffy hid account information from some customers, 

including by directing that they not look at account statements.  

48. 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!”   

49. By the time Craffy was terminated by Brokerage Firm B in November 

2022, Customer 11 suffered realized losses of more than $86,000, of which more 

than $34,000 were commissions that largely went to Craffy. 

50. Many of Craffy’s customers suffered realized losses while he was their 

broker. In total, the 31 customers listed above suffered realized losses of 

approximately $1.79 million, including approximately $1.64 million in fees and 

commissions. These commissions were largely paid to Craffy personally. In addition 

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to these realized losses, many customers also faced substantial unrealized losses. 

After Craffy was terminated by Brokerage Firm B, the accounts of the 31 customers 

listed above had unrealized losses totaling approximately $1.8 million. 

51. The following four examples illustrate in greater detail Craffy’s 

fraudulent unauthorized trading in his customers’ accounts. 

1. Craffy made unauthorized trades in Customer 9’s Roth 
IRA account. 

 
52. Customer 9 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. 

53. Customer 9 met Craffy through his work as an Army Financial 

Counselor approximately two months after her husband’s death. 

54. Craffy falsely told Customer 9 that she would have to invest with 

Craffy in order to take advantage of certain tax benefits.  

55. 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. 

56. 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.  

57. 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. 

58. Customer 9 was not aware that Craffy was supposed to seek her 

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authorization before placing trades, and Craffy did not seek Customer 9’s 

permission to place trades.   

59. All of Craffy’s trades in Customer 9’s account at Brokerage Firm B 

were unauthorized. 

60. Craffy omitted to disclose material facts, including the fact of his 

unauthorized trades in Customer 9’s account, to Customer 9. 

61. 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. 

2. Craffy made unauthorized trades in brokerage accounts 
belonging to two minors. 

 
62. Customer 2 and Customer 3 were both adolescents when their father 

passed away, leaving them each approximately $200,000 in death gratuity and 

insurance benefits. Because Customer 2 was fourteen years old and Customer 3 was 

thirteen, their mother and stepfather managed the funds for their benefit.  

63. Craffy met Customer 2 and Customer 3’s mother and stepfather 

through his job as an Army Financial Counselor. The mother and stepfather both 

had limited investment experience and trusted Craffy because of his position with 

the Army.  

64. At Craffy’s direction, Customer 2 and Customer 3’s mother and 

stepfather caused $175,000 each of the Customers’ $200,000 in benefits to be 

directed to separate Roth IRA accounts at Brokerage Firm B, with Craffy as the 

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broker. 

65. Neither Customer 2’s nor Customer 3’s account was discretionary. As 

such, Craffy was required to obtain authorization before conducting any trades in 

their accounts.  

66. Craffy did not discuss specific trades with Customers 2 and 3, their 

mother, or their stepfather before placing trades. Craffy did not receive written 

permission from Customers 2 or 3, their mother, or their stepfather before placing 

trades. 

67. All of Craffy’s trades in Customer 2’s and Customer 3’s accounts at 

Brokerage Firm B were unauthorized. 

68. Craffy omitted to disclose material facts, including the fact of his 

unauthorized trades in Customer 2’s and Customer 3’s accounts, to Customer 2, 

Customer 3, their mother, or their stepfather.  

69. Craffy also did not disclose that his frequent trading in Customer 2’s 

and Customer 3’s accounts was causing the value of each to decrease substantially, 

in part through commissions paid to Craffy for each trade. Instead, Craffy told their 

mother that factors like the war in Ukraine had caused losses. 

70. While Craffy was managing Customer 2’s account at Brokerage Firm 

B, Customer 2 suffered realized losses of approximately $76,000, of which about 

$42,000 was paid in fees and commissions, most of which went to Craffy. Customer 

2 also suffered additional approximate unrealized losses of about $28,000.  

71. Due to Craffy’s unauthorized trades in Customer 3’s account, she paid 

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approximately $61,000 in fees and commissions, most of which went to Craffy.  

72. Craffy also misappropriated funds from Customer 3, described in 

Section III below, which significantly affected her account’s balances. 

3. Craffy made unauthorized trades in Customer 29’s 
brokerage account. 

 
73. Customer 29 was a Gold Star family member whose husband passed 

away while on active duty. 

74. Customer 29 met Craffy shortly thereafter through his work as a 

Financial Counselor. She believed that paperwork Craffy provided her was 

connected to a free program provided by the Army to widows.  

75. Customer 29 had no prior experience with investing, and she trusted 

Craffy because he worked for the Army. 

76. As a result, Customer 29 opened a Roth IRA account at Brokerage 

Firm B that Craffy managed, which she funded with $300,000 in death benefits she 

received following the death of her husband. 

77. Customer 29’s account was non-discretionary, meaning that Craffy was 

required to obtain permission from Customer 29 before placing any trades in her 

account. 

78. Craffy did not seek Customer 29’s permission to place trades in her 

account. Customer 29 was unaware of the specific trades Craffy placed in her 

account. 

79. All of Craffy’s trades in Customer 29’s account at Brokerage Firm B 

were unauthorized. 

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80. Craffy omitted to disclose material facts, including the fact of his 

trades in Customer 29’s account, to Customer 29. 

81. While Craffy was managing Customer 29’s account, Customer 29 paid 

approximately $16,000 in fees and commissions, most of which went to Craffy, and 

also suffered unrealized losses of approximately $52,000. 

82. In sum, Craffy committed securities fraud by conducting unauthorized 

trades in 31 customers’ brokerage accounts. Craffy knew or recklessly disregarded 

that the trades were unauthorized, and he made false statements and made 

material omissions that would have rendered the statement he did make not 

misleading, concerning these trades, including the facts of the trades themselves. 

III.  CRAFFY MISAPPROPRIATED FUNDS FROM A THIRTEEN-YEAR-
OLD CUSTOMER’S BROKERAGE ACCOUNT. 

 
83. As described above, Customer 3 was thirteen years old when Craffy 

managed her Roth IRA account at Brokerage Firm B. Craffy defrauded Customer 3 

through a scheme to misappropriate funds from her securities account. 

84. Craffy knew and recklessly disregarded that he could not enter into a 

financial arrangement with or borrow money from customer accounts.  

85. For example, on December 21, 2021, Craffy signed Brokerage Firm B’s 

annual compliance questionnaire, in which he confirmed in a section entitled 

“Prohibited Acts” that he had never borrowed money from a customer. 

86. Nevertheless, Craffy persuaded Customer 3’s mother to provide him 

with a personal loan and suggested that he could borrow funds from Customer 3’s 

Roth IRA account. He further told Customer 3’s mother that the funds would be 

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returned to Customer 3’s Roth IRA within approximately two months such that 

Customer 3 would not incur a tax penalty.  

87. On or around March 11, 2022, Craffy sold two stocks in Customer 3’s 

Roth IRA account, generating sales proceeds of about $85,000. 

88. Craffy then directed Customer 3’s mother to withdraw $50,000 from 

Customer 3’s Roth IRA account. Craffy signed the retirement account withdrawal 

form as the broker on the account. The securities sales that Craffy made on or 

around March 11, 2022 funded the $50,000 withdrawal from the account for which 

he had signed. 

89. Customer 3’s mother used the $50,000 withdrawn from Customer 3’s 

Roth IRA account to fund a $50,000 check that she wrote to Craffy, which Craffy 

deposited into his personal bank account. 

90. Although the word “gift” was written on the check, Craffy told 

Customer 3’s mother that the check was a loan that he was characterizing as a gift 

for tax purposes. 

91. Craffy did not disclose the loan from Customer 3’s Roth IRA account to 

Brokerage Firm B. 

92. Craffy did not repay the $50,000 from the purported loan to Customer 

3’s Roth IRA account. Moreover, the $50,000 was not returned to Customer 3’s Roth 

IRA account within the approximately two-month time period that Craffy had 

promised when defrauding Customer 3’s mother into loaning him the funds from 

Customer 3’s Roth IRA account. 

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IV. CRAFFY VIOLATED REGULATION BEST INTEREST’S CARE 
OBLIGATION BY EXCESSIVELY TRADING AND OVERLY 
CONCENTRATING HIS RETAIL CUSTOMERS’ ACCOUNTS. 

 
A. Regulation Best Interest Requires Brokers Like Craffy to 

Exercise Reasonable Diligence, Care, and Skill When Making 
Recommendations to Customers. 

 
93. Regulation Best Interest, which became effective on June 30, 2020, 

established a standard of conduct for broker-dealers and associated persons 

(including registered representatives like Craffy) when they recommend securities 

transactions or investment strategies involving securities, including account 

recommendations, to retail customers. 

94. The SEC issued an adopting release offering guidance on how the 

Commission interprets Regulation Best Interest. See Regulation Best Interest: The 

Broker-Dealer Standard of Conduct, Exchange Act Release No. 34-86031, 84 Fed. 

Reg. 33318 (July 12, 2019) (the “Adopting Release”). 

95. The Best Interest Obligation requires a broker, dealer, or a natural 

person associated with a broker or dealer, when making a securities-transaction or 

investment-strategy recommendation to a retail customer, to act in the best interest 

of that retail customer at the time the recommendation is made, without placing the 

financial or other interest of the broker, dealer, or associated person ahead of the 

interest of the retail customer. 

96. Regulation Best Interest defines a retail customer as “a natural 

person, or the legal representative of such natural person, who: (i) Receives a 

recommendation of any securities transaction or investment strategy involving 

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securities from a broker, dealer, or a natural person who is an associated person of a 

broker or dealer; and (ii) uses the recommendation primarily for personal, family, or 

household purposes.” 

97. A registered representative who conducts a trade on behalf of a 

customer without that customer’s explicit authorization implicitly recommends the 

trades for that customer. 

98. The Best Interest Obligation is satisfied only by compliance with four 

component obligations: (1) the Disclosure Obligation to provide certain prescribed 

disclosure, before or at the time of the recommendation, about the recommendation 

and the relationship between the retail customer and the firm, (2) the Care 

Obligation to exercise reasonable diligence, care, and skill in making the 

recommendation, (3) the Conflict of Interest Obligation to establish, maintain, and 

enforce policies and procedures reasonably designed to address conflicts of interest, 

and (4) the Compliance Obligation to establish, maintain, and enforce policies and 

procedures reasonably designed to achieve compliance with Regulation BI. 

99. The Care Obligation requires a broker, dealer, or associated person to 

exercise reasonable diligence, care, and skill to “[h]ave a reasonable basis to believe 

that the recommendation is in the best interest of a particular retail customer based 

on that retail customer’s investment profile and the potential risks, rewards, and 

costs associated with the recommendation.” 

100. The Adopting Release states that what is in the best interest of a retail 

customer depends on the facts and circumstances of the recommendation, including 

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“matching” the recommended security to the retail customer’s investment profile. 

Where the match between the retail customer profile and the recommendation 

appears less reasonable, it is more important for the broker to establish that it had 

a reasonable belief that the recommendation was in the best interest of the retail 

customer 

101. The Adopting Release states that, in addition to matching the 

recommendation to the customer’s suitability profile, a registered representative 

should also exercise reasonable diligence, care, and skill to consider reasonably 

available alternatives. 

102. The Care Obligation, as noted in the Adopting Release, also requires a 

broker, dealer, or associated person to exercise reasonable diligence, care, and skill 

to “have a reasonable basis to believe that a series of recommended transactions, 

even if in the retail customer’s best interest when viewed in isolation, is not 

excessive and is in the retail customer’s best interest when taken together in light of 

the retail customer’s investment profile.” 

103. The Care Obligation applies to a series of recommended transactions, 

regardless of whether the broker-dealer exercises actual or de facto control over a 

customer’s account.  

104. Regulation Best Interest’s Adopting Release specifies that “a ‘series’ of 

recommended transactions is an established term under the federal securities laws 

and Self-Regulatory Organization rules that is evaluated in concert with existing 

guideposts, such as turnover rate, cost-to-equity ratio, and use of in-and-out 

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trading, which have been developed over time and which serve as indicators of 

excessive trading.”  

105. Craffy was thus prohibited under Regulation Best Interest from 

placing his financial or other interests ahead of his retail customers’ interests. 

B. Craffy Did Not Meet His Obligations Under Regulation Best 
Interest. 
 

106. Craffy made recommendations to at least six retail customers, through 

the numerous trades he conducted in their accounts, without a reasonable basis to 

believe these recommendations were in the best interests of his customers. Craffy 

further failed to exercise reasonable diligence, care, and skill in making these 

recommendations to his retail customers.  

107. Instead, Craffy made many recommendations that placed Craffy’s 

interests ahead of his retail customers. 

108. Craffy knew that his Gold Star family customers were not only 

grieving, but were also facing the loss of a source of income for their family in the 

years ahead.  

109. Further, Craffy knew that these customers were heavily reliant on the 

death gratuity and life insurance payments they had received. These funds were a 

significant source of his customers overall assets, and many customers needed to 

preserve these funds in the near term for purposes such as their impending 

retirement or to provide for their children. 

110. As set forth below, Craffy also knew and recklessly disregarded that 

the customers’ investment profiles did not match the trades he made. 

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111. Indeed, his customers often wanted and needed to maintain a 

conservative trading strategy. Frequently, their Gold Star family benefits were 

these customers’ only significant assets. 

112. By contrast, Craffy personally benefited from the trades he executed in 

these customers’ accounts, in part because he received commission payments on a 

per-transaction basis. 

113. To enable his risky, high-commission trading strategy, Craffy 

presented documents to Brokerage Firm A, Brokerage Firm B, and his customers 

that falsely portrayed their financial positions and investment strategies, examples 

of which are alleged in more detail in subsections C through G below. Doing so 

enabled Craffy to execute trades that may otherwise have raised red flags.  

114. In many cases, at his direction, Craffy’s customers—who were 

grappling with the recent loss of a loved one and often found the death benefit funds 

upsetting to deal with—signed the documents Craffy presented to them, trusting 

that he had filled them out accurately and without noticing the false 

representations that the documents contained. 

115. Given the mismatch between his retail customers’ true investment 

profiles and the trades Craffy made and the positions he took, Craffy did not 

demonstrate reasonable diligence, care, or skill in determining that these actions 

were in his customers’ best interests.  

116. More specifically, Craffy violated Regulation Best Interest in at least 

two ways described below.  

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117. First, Craffy excessively traded in at least four retail customers’ 

accounts, which incurred high costs, including commissions that were mostly paid 

to him, and had a significant impact on the value of his customers’ accounts.  

118. Generally, a turnover rate2 above 6 and a cost-to-equity ratio3 above 

20% are recognized as benchmarks for excessive trading. 

119. Craffy incurred large fees and commissions through his trading in the 

accounts of Customers 9, 2, 3, and 29, all of which had indicators of excessive 

trading. This trading was excessive under Regulation Best Interest because, among 

other things, it involved approximate turnover rates and cost-to-equity ratios above 

widely recognized guideposts for excessive trading, as shown below:  

Account  
Turnover 

Rate 

Cost-to-
Equity 
Ratio Period  

Total 
Trades  
During 
Period 

Approximate 
Commissions and 
Fees Paid During  

Period 

Customer 9  7.1794 24.40% 
1/18/22 – 
10/31/22 50 $72,682.54 

Customer 2  6.3038 24.40% 
7/20/21 – 
10/31/22 33 $41,790.87 

Customer 3  6.2439 26.73% 
7/30/21 – 
10/31/22 41 $56,114.00 

Customer 29 10.4968 38.63% 
9/13/22 – 
10/31/22 12 $16,212.40 

 
120. Second, for three retail customers from approximately August 2021 

through October 2022, Craffy recommended trades that resulted in their accounts 

                                                 
2 The turnover rate is the measure of the volume of trading that changes the 
holdings of a portfolio without changing its size. 
 
3 The cost-to-equity ratio measures the expenses incurred by a given set of trades 
against the total holdings in an account over a period of time. 

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being highly concentrated in one or a small number of corporate-issuer stocks. 

These concentration levels and lack of diversification posed significant risk of loss. 

Such trades did not match the customers’ investment profiles and were not in the 

best interest of Craffy’s customers.  

121.  The following examples—each involving retail customers—illustrate 

how Craffy’s trading violated Regulation Best Interest through excessive trading, 

high concentration, or both. 

1. Craffy Excessively Traded in Customer 9’s Brokerage 
Account and Exposed Her Funds to High Risks through 
Concentration. 

 
122. As described above, Customer 9 was a widow with three children, the 

oldest of whom was 13. Customer 9 told Craffy on several occasions that she wanted 

the money from her husband’s survivor benefits to be available for her children 

when they turned 18.  

123. For example, three days before she opened the account at Brokerage 

Firm B, Customer 9 wrote to Craffy in a text message, “I want to make sure the 

money is available for the kids…to help through college, maybe even set up a small 

nest egg for when they finish college, etc.” Customer 9 also noted that her oldest 

child would be going to college in five years. 

124. Craffy thus knew that Customer 9’s investment profile called for her to 

preserve her capital for short-term use. 

125. Instead, Craffy presented Customer 9 and Brokerage Firm B with 

documents that falsely described her risk tolerance as “aggressive” and stated that 

she wanted a “speculative growth” strategy.  

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126. Craffy used these false statements to ensure that Customer 9’s Roth 

IRA account would provide him maximum flexibility to execute trades that would 

earn him significant commissions.  

127. Craffy then engaged in a series of transactions that excessively traded 

Customer 9’s account and did not match her investment profile, but instead put 

Craffy’s interest ahead of Customer 9’s best interest. 

128.  Specifically, by trading approximately 50 times in less than 10 

months, Craffy generated approximately $73,000 in fees and commissions, most of 

which he personally received. His excessive trading had a cost-to-equity ratio of 

more than 24% and a turnover rate greater than seven for Customer 9’s account.  

129. The large fees and commission payments Craffy incurred, the high 

turnover rate of the account, and the excessive cost-to-equity ratios of his trading 

demonstrate that Craffy did not have a reasonable basis for his recommendations to 

Customer 9.  

130. Craffy also engaged in a risky investment strategy that concentrated 

Customer 9’s account in a small number of single corporate-issuer stocks.  

131. For example, the following table shows how Craffy caused Customer 

9’s brokerage account to be highly concentrated in certain stocks at the end of 

various months: 

Stock Name Month Stock’s Approximate Percentage of 
Total Portfolio Assets at Month-End 

Stock A July 2022 100.00% 
Stock A October 2022 78.05% 
Stock A September 2022 76.97% 
Stock A Aug 2022 74.13% 

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Stock Name Month Stock’s Approximate Percentage of 
Total Portfolio Assets at Month-End 

Stock A June 2022 58.24% 
Stock B May 2022 52.47% 
Stock B March 2022 50.53% 
Stock B April 2022 49.40% 
Stock B January 2022 47.76% 
Stock B February 2022 46.44% 
Stock C April 2022 44.28% 
Stock C May 2022 42.84% 
Stock C March 2022 42.42% 
Stock C June 2022 41.80% 
Stock D August 2022 25.91% 
Stock D September 2022 24.00% 
Stock D October 2022 23.35% 

 
132. Price volatility in any one of those stocks in each of the above-listed 

months could have caused significant losses for Customer 9. Craffy’s actions thus 

exposed Customer 9’s account to great risks from concentration and lack of 

diversification, which did not match her investment profile of attempting to 

preserve funds for short-term use.  

133. Craffy’s excessive trading in Customer 9’s accounts and concentration 

of her funds in single corporate-issuer stocks was inconsistent with Customer 9’s 

investment profile and objectives. In doing so, Craffy failed to exercise reasonable 

diligence, care, and skill in making recommendations to Customer 9, failed to have 

a reasonable basis for his recommendations, and violated Regulation Best Interest. 

2. Craffy Excessively Traded in Customer 2’s and Customer 
3’s Brokerage Accounts. 

 
134. As described above, Customers 2 and 3 were minor children when their 

father died in active duty, leaving them each with approximately $200,000 in 

survivor benefits. Their mother and stepfather opened separate retirement accounts 

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for them at Craffy’s direction and invested $175,000 each of Customer 2’s and 

Customer 3’s money. Their mother and stepfather told Craffy that they wanted the 

funds they had invested with him to be available for Customers 2 and 3 when they 

turned 18. For Customer 2, that would only take four years; Customer 3 would turn 

18 in just five years. 

135. Thus, Craffy knew that Customer 2’s and Customer 3’s investment 

profile required that they preserve their capital for short-term use. 

136. Nevertheless, Craffy caused forms to be submitted to Brokerage Firm 

B that contained a number of false statements.  

137. First, Craffy listed both Customer 2 and Customer 3 as having a net 

worth of $750,000 and a liquid net worth of $600,000.  

138. These figures were wildly inaccurate, as Craffy knew, because 

Customer 2’s and Customer 3’s assets each largely consisted of their father’s 

$200,000 death benefits. 

139. In addition, Craffy falsely listed Customer 2’s and Customer 3’s 

investment habits as “primary debt payment.” Neither Customer 2 nor Customer 3 

had any significant debt. 

140. Craffy further falsely listed Customer 2’s and Customer 3’s risk 

tolerance as “aggressive,” their investment objectives as “Maximum Growth,” and 

their strategy as “speculative growth.” In fact, Craffy knew that each of these 

statements was false, because Customer 2 and Customer 3’s mother and stepfather 

had explained to Craffy that Customers 2 and 3 would need to save this money for 

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use in a few years. 

141. Craffy used the false statements on Customer 2’s and Customer 3’s 

investment documents to ensure that their Roth IRA accounts would provide him 

maximum flexibility to execute trades that would earn him significant commissions.  

142. Craffy then engaged in a series of excessive trades in Customer 2’s and 

Customer 3’s accounts that put his interests ahead of their best interest. 

143. Specifically, in a period of just over three months, Craffy conducted 

approximately 33 trades in Customer 2’s brokerage account. The turnover rate for 

this period was greater than 6.3 and the cost-to-equity ratio for the trades was 

greater than 24%. Craffy’s trades generated more than $41,000 in fees and 

commissions, most of which went to him.  

144. Likewise, in a three-month period, Craffy made about 41 trades in 

Customer 3’s brokerage account, resulting in a turnover rate of greater than 6.2 and 

a cost-to-equity ratio of greater than 26%. These trades cost Customer 3 more than 

$56,000 in fees and commissions, most of which went to Craffy. 

145. Under the well-recognized guideposts of excessive trading—a turnover 

rate above 6 and a cost-to-equity ratio of 20%—Craffy’s trades in Customer 2’s and 

Customer 3’s accounts were excessive. There was no reasonable basis for Craffy to 

conduct these series of trades, and doing so cost Customers 2 and 3 fees and 

commissions of more than $90,000. 

146. The high turnover rates and the excessive cost-to-equity ratios in the 

accounts show that Craffy failed in his obligations under Regulation Best Interest 

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to retail Customers 2 and 3. Instead, Craffy caused them to incur large fees and 

commissions, thereby putting his interest ahead of the best interests of Customer 2 

and 3 in violation of Regulation Best Interest.  

3. Craffy Excessively Traded in Customer 29’s Brokerage 
Account and Exposed Her Funds to High Risks through 
Concentration. 

 
147. When Customer 29 met Craffy, she was recently widowed with a 

seven-year-old son and was living with her in-laws until she could get enough 

money to move out into her own apartment, all of which was known to Craffy. 

Customer 29 believed that Craffy’s services were a free Army program offered to her 

as a widow, and she had no idea that Craffy was working for a private company 

unrelated to the Army. 

148. Customer 29 told Craffy that she wanted to save the money she was 

investing to be available for her son’s use. Customer 29 had no prior experience 

with investing and was not comfortable with the risk of losing her entire savings. 

149. Craffy knew that Customer 29’s investment needs were to preserve her 

capital and that pursuing risky strategies did not match her investment profile. 

150. Nevertheless, Craffy presented Customer 29 and Brokerage Firm B 

with documents that falsely described Customer 29’s risk tolerance as “Maximum 

Growth” and stated that she wanted a “speculative growth” strategy. Craffy also 

falsely represented that Customer 29’s net worth was $750,000, when in fact, he 

well knew, it was significantly lower. 

151. Craffy used these false statements to ensure that Customer 29’s Roth 

IRA account would provide him flexibility to execute trades that would earn him 

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significant commissions.  

152. Craffy then engaged in a series of transactions that excessively traded 

Customer 29’s accounts and did not match her investment profile. 

153. Specifically, in just six weeks, Craffy executed approximately 12 trades 

that cost Customer 29 about $16,000 in fees and commissions, most of which were 

paid to him. The trades represented a cost-to-equity ratio of more than 36% and a 

turnover rate of approximately ten.  

154. The large fees and commissions Craffy caused Customer 29 to pay, the 

high turnover rate of the account, and the excessive cost-to-equity ratios of his 

trading demonstrate that Craffy did not have a reasonable basis for his 

recommendations to Customer 29.  

155. Instead, Craffy put his personal interests ahead of Customer 29’s best 

interest, causing her to pay fees and commissions of more than $16,000 in less than 

two months, most of which went to him personally. 

156. Craffy also engaged in a risky investment strategy that concentrated 

Customer 29’s account in a small number of single corporate-issuer stocks. 

157. For example, in September 2022 Craffy caused almost all of the funds 

in Customer 29’s Roth IRA account to be held in just two stocks.  

158. Concentrating almost all of her funds in two stocks placed Customer 

29’s funds at great risk and did not match Customer 29’s investment profile. Indeed, 

Customer 29’s accounts realized losses from the sale of one of these stocks shortly 

after Craffy was terminated from Brokerage Firm B in November 2022.  

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159. Given her investment profile, there was no reasonable basis for Craffy 

to concentrate almost all of Customer 29’s funds in just two stocks. 

160. Excessively trading in Customer 29’s accounts and concentrating her 

funds in single corporate-issuer stocks exposed Customer 29 to a higher risk of loss 

and did not match her investment profile. In doing so, Craffy failed to exercise 

reasonable diligence, care, and skill in making recommendations to Customer 29, 

failed to have a reasonable basis for his recommendations, and violated Regulation 

Best Interest. 

4. Craffy Exposed Customer 25’s Brokerage Account to a 
High Risk through Concentration. 

 
161. Customer 25 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.  

162. Customer 25 had no investment experience before receiving these 

benefits and trusted Craffy because the Army had assigned him to help her. 

163. Craffy directed Customer 25 to open an account at Brokerage Firm B. 

164. Craffy knew that Customer 25 was retired, had a fixed income, and 

needed to preserve her capital. Forms that Craffy presented to Brokerage Firm B 

listed Customer 25’s risk tolerance as moderate and her investment goal as “Income 

and Growth,” meaning “I want my investments to produce a steady stream of 

income and growth without major declines in value.” 

165. In spite of Customer 25’s need, as a retiree, to preserve her capital, 

Craffy caused her brokerage account to be highly concentrated in a small number of 

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single corporate-issuer stocks, as set forth below: 

Stock Name Month Stock’s Percentage of Total 
Portfolio Assets at Month-End 

Stock D October 2022 107.06%4 
Stock E September 2022 102.63% 
Stock F June 2022 100.00% 
Stock E August 2022 100.00% 
Stock G  May 2022 55.74% 
Stock H November 2021 55.24% 
Stock H December 2021 52.90% 
Stock G April 2022 49.99% 
Stock H October 2021 48.90% 
Stock H January 2022 42.47% 
Stock H March 2022 36.64% 
Stock H May 2022 36.31% 
Stock H February 2022 33.56% 
Stock H April 2022 28.83% 
Stock I September 2021 28.03% 
Stock I August 2021 26.03% 

 
166. Price volatility in any one of those stocks in each of the above-listed 

months could have caused significant losses for Customer 25, depleting her 

retirement capital. Craffy’s actions thus exposed Customer 25’s account to great 

risks. Given her investment profile, there was no reasonable basis for Craffy to 

concentrate Customer 25’s funds as reflected above.   

167. Craffy recommended trades that concentrated Customer 25’s assets in 

single corporate-issuer stocks, lacked diversification, and did not match Customer 

25’s investment profile or objectives. Craffy failed to exercise reasonable diligence, 

care, and skill in making recommendations to Customer 25, and thus violated 

                                                 
4 Concentration percentages at month-end in excess of 100% are due to the account 
also holding a short position in the same stock through an options trade. That 
resulted in the account having month-end total portfolio assets that were less than 
the value of the stock held. 

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Regulation Best Interest. 

5. Craffy Exposed Customer 8’s Brokerage Account to a 
High Risk through Concentration. 

 
168. Customer 8 lost her husband while he was on active-duty service in the 

U.S. Army. She met Craffy in his role as Financial Counselor. 

169. Craffy directed Customer 8 to open an account at Brokerage Firm B. 

170. At Craffy’s direction, Customer 8 invested approximately $340,000 of 

the survivor benefits and insurance payments she received as a result of her 

husband’s death.  

171. When she opened the investment account with Craffy, Customer 8 had 

a six-year-old daughter and was unable to obtain life insurance herself due to a 

medical condition. Thus, she told Craffy she wanted the funds she invested through 

him to be available to her daughter should Customer 8 pass away. 

172. In spite of this disclosed need, Craffy prepared contradictory forms on 

Customer 8’s behalf. On one, he accurately listed her investment goal as 

“Conservative Growth . . . I’m willing to accept a lower return to avoid risk of a 

major decline in the value of my investments.” On another form, he falsely stated 

that her goal was “Maximum Growth: Maximum capital appreciation with higher 

risk and little to no income.”  Craffy also falsely listed Customer 8’s income on 

account forms as higher than it actually was. 

173. Craffy disregarded Customer 8’s true investment profile in making 

trades in her account. He caused her Roth IRA account to be highly concentrated in 

a small number of single corporate-issuer stocks, as set forth below: 

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Stock 
Name 

Month Stock’s Approximate Percentage of 
Total Portfolio Assets at Month-End 

Stock D October 2022 106.78% 
Stock D September 2022 101.93% 
Stock D August 2022 100.00% 
Stock J July 2022 100.00% 
Stock K June 2022 39.39% 
Stock K May 2022 34.91% 
Stock K March 2022 34.88% 
Stock K February 2022 32.70% 
Stock K April 2022 31.96% 
Stock L February 2022 28.70% 
Stock M March 2022 26.94% 
Stock M April 2022 25.02% 
Stock L April 2022 24.96% 
Stock N June 2022 24.88% 
Stock L May 2022 24.18% 
Stock L March 2022 22.75% 
Stock N May 2022 21.40% 

 
174. Price volatility in any one of those stocks in each of the above-listed 

months could have caused significant losses for Customer 8. Craffy’s actions thus 

exposed Customer 8’s account to great risks. Given her investment profile, there 

was no reasonable basis for Craffy to concentrate Customer 8’s funds as shown 

above. 

175.  Craffy recommended trades that concentrated Customer 8’s assets in 

single corporate-issuer stocks, lacked diversification, and did not match Customer 

8’s investment profile or objectives. Craffy failed to exercise reasonable diligence, 

care, and skill in making recommendations to Customer 8, and thus violated 

Regulation Best Interest. 

176. Based on the foregoing, Craffy violated Regulation Best Interest by 

failing to exercise reasonable diligence, care, and skill and to have a reasonable 

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basis to believe that his recommendations were in the best interest of his retail 

customers, based on those customers’ investment profiles and the potential risks, 

rewards, and costs associated with Craffy’s recommendations. 

FIRST CLAIM FOR RELIEF 
Violations of Securities Act Section 17(a) 

 
177. The Commission re-alleges and incorporates by reference here the 

allegations in paragraphs 1 through 92. 

178. Defendant Craffy, directly or indirectly, singly or in concert, in the 

offer or sale of securities and by the use of the means or instruments of 

transportation or communication in interstate commerce or the mails, (1) knowingly 

or recklessly employed one or more devices, schemes or artifices to defraud, (2) 

knowingly, recklessly, or negligently obtained money or property by means of one or 

more untrue statements of a material fact or omissions of a material fact necessary 

in order to make the statements made, in light of the circumstances under which 

they were made, not misleading, and/or (3) knowingly, recklessly, or negligently 

engaged in one or more transactions, practices, or courses of business which 

operated or would operate as a fraud or deceit upon the purchaser. 

179. By reason of the foregoing, Defendant Craffy, directly or indirectly, 

singly or in concert, violated and, unless enjoined, will again violate Securities Act 

Section 17(a) [15 U.S.C. § 77q(a)]. 

SECOND CLAIM FOR RELIEF 
Violations of Exchange Act Section 10(b) and Rule 10b-5 Thereunder 

 
180. The Commission re-alleges and incorporates by reference here the 

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allegations in paragraphs 1 through 92. 

181. Defendant Craffy, directly or indirectly, singly or in concert, in 

connection with the purchase or sale of securities and by the use of means or 

instrumentalities of interstate commerce, or the mails, or the facilities of a national 

securities exchange, knowingly or recklessly (i) employed one or more devices, 

schemes, or artifices to defraud, (ii) made one or more untrue statements of a 

material fact or omitted to state one or more material facts necessary in order to 

make the statements made, in light of the circumstances under which they were 

made, not misleading, and/or (iii) engaged in one or more acts, practices, or courses 

of business which operated or would operate as a fraud or deceit upon other 

persons. 

182. By reason of the foregoing, Defendant Craffy, directly or indirectly, 

singly or in concert, violated and, unless enjoined, will again violate Exchange Act 

Section 10(b) [15 U.S.C. § 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5]. 

THIRD CLAIM FOR RELIEF 
Violations of Regulation Best Interest’s General Obligation 

183. The Commission re-alleges and incorporates by reference here the 

allegations in paragraphs 1 through 25 and 93 through 176. 

184. By engaging in the conduct described above, when making 

recommendations of securities transactions to retail customers, Defendant Craffy 

failed to act in the best interest of the retail customers by failing to exercise 

reasonable diligence, care, and skill to understand the potential risks, rewards, and 

costs associated with the recommendation. 

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185. Also, by engaging in the conduct described above, Defendant Craffy 

made recommendations to retail customers without exercising reasonable diligence, 

care, and skill to have a reasonable basis to believe the recommendations were in 

the best interests of the particular retail customer based on that retail customer’s 

investment profile and the potential risks, rewards, and costs associated with the 

recommendation. 

186. The failure of Defendant Craffy to comply with Regulation Best 

Interest’s Care Obligation constitutes a violation of Regulation Best Interest’s 

General Obligation. 

187. By reason of the foregoing, Defendant Craffy violated and, unless 

enjoined, will again violate Rule 15l-1(a)(1) of the Exchange Act [17 C.F.R. 

§ 240.15l-1(a)(1)]. 

PRAYER FOR RELIEF 

 WHEREFORE, the Commission respectfully requests that the Court enter a 

Final Judgment: 

I. 

Permanently enjoining Defendant Craffy from violating, directly or 

indirectly, Securities Act Section 17(a) [15 U.S.C. § 77q(a)], Exchange Act Section 

10(b) [15 U.S.C. § 78j(b)], and Rules 10b-5 and 15l-1(a)(1) [17 C.F.R. §§ 240.10b-5 

and 240.15l-1(a)(1)];  

II. 

Ordering Defendant Craffy to disgorge all ill-gotten gains he received directly 

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or indirectly, with pre-judgment interest thereon, as a result of the alleged 

violations, pursuant to Exchange Act Sections 21(d)(3), 21(d)(5), and 21(d)(7) [15 

U.S.C. §§ 78u(d)(3), 78u(d)(5), and 78u(d)(7)]; 

III. 

Ordering Defendant Craffy to pay civil monetary penalties under Securities 

Act Section 20(d) [15 U.S.C. § 77t(d)] and Exchange Act Section 21(d)(3) [15 U.S.C. 

§ 78u(d)(3)]; and 

IV. 

Granting any other and further relief this Court may deem just and proper.  

  

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JURY DEMAND 

 Pursuant to Rule 38 of the Federal Rules of Civil Procedure, the Commission 

demands that this case be tried before a jury. 

 
 

      /s/ Antonia M. Apps                
ANTONIA M. APPS  
REGIONAL DIRECTOR  
Sheldon Pollock 
Hane L. Kim 
Hayden M. Brockett 
Michael C. Ellis 
Bari R. Nadworny 
Ariel Atlas 
Attorneys for Plaintiff 
SECURITIES AND EXCHANGE COMMISSION 
New York Regional Office 
100 Pearl Street  
Suite 20-100 
New York, NY 10004-2616 
212-336-9107 (Brockett) 
[email protected] 

 
 
 
Date: Trenton, New Jersey 

July 7, 2023 
 
 
 
 
 

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IN THE UNITED STATES DISTRICT COURT 
FOR THE DISTRICT OF NEW JERSEY 

 
SECURITIES AND EXCHANGE 
COMMISSION, 
                                             Plaintiff, 
                        v. 
 
CAZ L. CRAFFY 
a/k/a CARZ LEVINSKI CRAFFEY 
   
                                             Defendant 

 
 
Civil Action No. 23-CV-3639        

   
   

JURY TRIAL DEMANDED 
  

      DESIGNATION OF AGENT   
      FOR SERVICE     

          
 

Pursuant to Local Rule 101.1(f), because the Securities and Exchange 

Commission (the “Commission”) does not have an office in this district, the United 

States Attorney for the District of New Jersey is hereby designated as eligible as an 

alternative to the Commission to receive service of all notices or papers in the 

captioned action. Therefore, service upon the United States or its authorized 

designee, Matthew J. Mailloux, Assistant United States Attorney, Civil Division, 

United States Attorney’s Office for the District of New Jersey, 970 Broad Street, 7th 

Floor, Newark, NJ 07102, shall constitute Service upon the Commission for 

purposes of this action. 

 
 
 
 
 
 
 
 
 
 
 

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Date: July 7, 2023         /s/ Antonia M. Apps   
ANTONIA M. APPS  
REGIONAL DIRECTOR  
Sheldon Pollock 
Hane L. Kim 
Hayden M. Brockett 
Michael Ellis 
Bari R. Nadworny 
Ariel Atlas 
 
Attorneys for Plaintiff: 
SECURITIES AND EXCHANGE COMMISSION 
New York Regional Office 
100 Pearl Street  
Suite 20-100 
New York, NY 10004-2616 
212-336-9107 (Brockett) 
[email protected] 

 

Case 3:23-cv-03639   Document 1   Filed 07/07/23   Page 42 of 42 PageID: 42


	Plaintiff Securities and Exchange Commission (“SEC” or “Commission”), 100 Pearl St., Suite 20-100, New York, New York, 10004, files this complaint against Caz L. Craffy, also known as Carz Levinski Craffey (“Craffy”), 4 Country Club Lane, Colts Neck, ...
	SUMMARY OF THE ACTION
	1. Caz Craffy abused a position of trust to violate the antifraud provisions and Regulation Best Interest of the federal securities laws.
	2. From November 2017 through January 2023, Craffy worked full-time as a U.S. Army Financial Counselor, tasked in part with helping Gold Star families who had received survivor and insurance payments of as much as $500,000 because a family member had ...
	3. Craffy exploited the heartache and relative lack of financial sophistication of at least 29 Gold Star family customers to direct that they transfer funds to brokerage accounts under his control. Craffy subsequently engaged in unauthorized trading i...
	4. Craffy further exposed several of his customers to large losses by failing to comply with the Care Obligation imposed on all brokers by Regulation Best Interest. Craffy knew that his customers’ primary investment goals were often to preserve their ...
	5. As a result of these violations, Craffy’s customers suffered approximately $1.79 million in realized losses and $1.8 million in unrealized losses. About $1.64 million of the realized losses were fees or commissions, most of which went to Craffy.
	VIOLATIONS
	6. By virtue of the foregoing conduct and as alleged further herein, Craffy has violated Section 17(a) of the Securities Act of 1933 (“Securities Act”) [15 U.S.C. § 77q(a)], Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) [15 U.S...
	7. Unless Craffy is restrained and enjoined, he will engage in the acts, practices, transactions, and courses of business set forth in this Complaint or in acts, practices, transactions, and courses of business of similar type and object.
	NATURE OF THE PROCEEDINGS AND RELIEF SOUGHT
	8. The Commission brings this action pursuant to the authority conferred upon it by Securities Act Sections 20(b) and 20(d) [15 U.S.C. §§ 77t(b) and 77t(d)] and Exchange Act Section 21(d) [15 U.S.C. § 78u(d)].
	9. The Commission seeks a final judgment: (a) permanently enjoining Craffy from violating the federal securities laws and rules this Complaint alleges he has violated, pursuant to Securities Act Section 20(b) [15 U.S.C. § 77t(b)] and Exchange Act Sect...
	JURISDICTION AND VENUE
	10. This Court has jurisdiction over this action pursuant to Securities Act Section 22(a) [15 U.S.C. § 77v(a)] and Exchange Act Section 27 [15 U.S.C. § 78aa].
	11. Defendant Craffy, directly and indirectly, has made use of the means or instrumentalities of interstate commerce or of the mails in connection with the transactions, acts, practices, and courses of business alleged herein.
	12. Venue lies in this District under Securities Act Section 22(a) [15 U.S.C. § 77v(a)] and Exchange Act Section 27 [15 U.S.C. § 78aa]. Defendant Craffy may be found in, is an inhabitant of, and transacts business in the District of New Jersey, and ce...
	DEFENDANT
	13. Craffy, age 40, resides in Colts Neck, New Jersey. Craffy has been a member of the United States Army Reserves since at least 2003 and is currently a Major. From November 2017 until January 2023, Craffy was employed full-time as a Financial Counse...
	OTHER RELEVANT INDIVIDUALS AND ENTITIES
	14. Brokerage Firm A is a Virginia corporation with its principal place of business in Boca Raton, Florida. Brokerage Firm A registered with the SEC as a broker-dealer in July 2000. Craffy was associated with Brokerage Firm A as a full-time registered...
	15. Brokerage Firm B is a New Jersey limited liability company with its principal place of business in Point Pleasant Beach, New Jersey. Brokerage Firm B registered with the SEC as a broker-dealer in July 2018. Craffy was associated with Brokerage Fir...
	16. Gold Star families are the survivors and loved ones of U.S. military service members who died during active duty service, regardless of cause. Certain Gold Star family members receive survivor benefits, including death benefits and insurance payme...
	17. Because Gold Star families have experienced traumatic losses and may be relatively financially unsophisticated, the U.S military provides them with Financial Counselors to furnish guidance and assistance concerning their survivor benefits.
	18. Craffy became a full-time Financial Counselor with the U.S. Army’s Fort Dix Survivor Outreach Services program in November 2017. In this role, Craffy was responsible for providing general financial education, counseling, and support for individual...
	19. Craffy was required by law to disclose outside assets, income, and arrangements to the U.S. Army. Craffy also at times acknowledged that as a Financial Counselor he was a “fiduciary” who was “obligated and bound to act in the best interest of” his...
	20. At the same time he served the U.S. Army full-time as a Financial Counselor, Craffy also worked full-time for private brokerage firms. Craffy first was associated with Brokerage Firm A as a broker (registered representative) from May 2017 through ...
	21. As a broker, Craffy received commissions from trades he placed for his customers who held accounts at Brokerage Firm A and Brokerage Firm B.
	22. Craffy caused at least 29 Gold Star family members he met through his Financial Counselor position to open investment accounts in which trading would personally benefit him at Brokerage Firm A and Brokerage Firm B.
	23. The Gold Star family members placed their trust in Craffy in part because they were introduced to him through the U.S. military, and certain of them believed that he would invest their funds in connection with a military-sponsored program.
	24. In an effort to hide his misconduct with the Gold Star families, Craffy failed to disclose to the Army his positions with Brokerage Firm A and Brokerage Firm B and the income he received from his work as a broker. He did this despite being require...
	25. As a broker, Craffy also had additional obligations—such as those imposed by Regulation Best Interest—toward his customers, including the 29 Gold Star families and two other customers with military ties.
	II. CRAFFY Fraudulently MADE UNAUTHORIZED TRADES In his customers’ accounts AND Hid THESE TRADES FROM HIS CUSTOMERS AND OTHERS.
	A. Craffy Deceived Customers into Opening Brokerage Accounts
	26. From approximately May 2018 to November 2022, Craffy instructed at least 31 customers, all of whom had military ties and 29 of whom were Gold Star family members, to open accounts with him at either Brokerage Firm A or Brokerage Firm B.
	27. Many of Craffy’s customers were comparatively financially unsophisticated. Often, they had only recently come into large amounts of money through the death of a loved one who had served in the U.S. military.
	28. Craffy knew that these customers were grieving and often unfamiliar with stocks and investing.
	29. Craffy exploited his customers’ trust by recommending that they invest the survivor and insurance benefits they received, often totaling about $500,000, with him personally, sometimes by falsely stating or misleadingly implying that they were requ...
	B. Craffy Executed Over 1,000 Unauthorized Trades in the Accounts of 31 Customers
	30. Both Brokerage Firm A and Brokerage Firm B prohibited Craffy from operating discretionary accounts.
	31. In addition, Craffy’s customers never gave him written discretionary authority to conduct transactions in their accounts without prior authorization.
	32. As a result, Craffy was not permitted to conduct trades in his customers’ accounts at either Brokerage Firm A or Brokerage Firm B without explicit authorization from the customers to make specific trades. Any trades Craffy did make without his cus...
	33. In spite of this prohibition, Craffy purchased and sold securities—including certain highly-concentrated0F  and thus risky investments—without authorization from his customers.
	34. Craffy executed over 1,000 unauthorized trades in accounts, many of which were Individual Retirement Accounts (“IRAs”), for at least the 31 customers at Companies A and B listed below:
	35. Craffy knew and recklessly disregarded that his trades in his customers’ accounts were unauthorized.
	36. Among other things, Craffy knew and recklessly disregarded that Brokerage Firm A’s policies prohibited him from exercising discretionary authority over his customers’ accounts.
	37. For example, Brokerage Firm A required that Craffy sign a “Monthly Heightened Supervision Agreement and Attestation” for January 2021. This document was at least the fourth such agreement that Craffy had been required to sign at Brokerage Firm A. ...
	38. In fact, Craffy had executed dozens of unauthorized trades in his customers’ accounts at Brokerage Firm A before falsely signing this attestation on February 12, 2021, and he continued to execute unauthorized trades thereafter.
	39. Craffy also knew and recklessly disregarded that Brokerage Firm B prohibited discretionary accounts.
	40. For example, on December 21, 2021, Craffy signed Brokerage Firm B’s annual compliance questionnaire, which included a list of “Prohibited Acts” that representatives like Craffy were “specifically prohibited by firm policy” from performing. In resp...
	41. In fact, Craffy had executed dozens of unauthorized trades in his customers’ accounts at Brokerage Firm B before falsely signing this attestation on December 21, 2021. Craffy then executed hundreds more unauthorized trades in customer accounts aft...
	C. Craffy Made Material Misstatements and Omitted Material Facts about His Unauthorized Trading and Customer Losses.
	42. In connection with his trading for the 31 customers, Craffy made false statements and omitted material facts that would have made statements not misleading, including the fact of his unauthorized trades, to his customers.
	43. In fact, Craffy only communicated with the customers infrequently, and then often only on personal subjects.
	44. Moreover, many of Craffy’s customers were too distraught to deal with their accounts on a regular basis and trusted Craffy to act on their behalf and in their best interest.
	45. 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.
	46. 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.
	47. In addition, Craffy hid account information from some customers, including by directing that they not look at account statements.
	48. 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 ...
	49. By the time Craffy was terminated by Brokerage Firm B in November 2022, Customer 11 suffered realized losses of more than $86,000, of which more than $34,000 were commissions that largely went to Craffy.
	50. Many of Craffy’s customers suffered realized losses while he was their broker. In total, the 31 customers listed above suffered realized losses of approximately $1.79 million, including approximately $1.64 million in fees and commissions. These co...
	51. The following four examples illustrate in greater detail Craffy’s fraudulent unauthorized trading in his customers’ accounts.
	1. Craffy made unauthorized trades in Customer 9’s Roth IRA account.
	52. Customer 9 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.
	53. Customer 9 met Craffy through his work as an Army Financial Counselor approximately two months after her husband’s death.
	54. Craffy falsely told Customer 9 that she would have to invest with Craffy in order to take advantage of certain tax benefits.
	55. 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.
	56. 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.
	57. 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.
	58. Customer 9 was not aware that Craffy was supposed to seek her authorization before placing trades, and Craffy did not seek Customer 9’s permission to place trades.
	59. All of Craffy’s trades in Customer 9’s account at Brokerage Firm B were unauthorized.
	60. Craffy omitted to disclose material facts, including the fact of his unauthorized trades in Customer 9’s account, to Customer 9.
	61. 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 losse...
	2. Craffy made unauthorized trades in brokerage accounts belonging to two minors.
	62. Customer 2 and Customer 3 were both adolescents when their father passed away, leaving them each approximately $200,000 in death gratuity and insurance benefits. Because Customer 2 was fourteen years old and Customer 3 was thirteen, their mother a...
	63. Craffy met Customer 2 and Customer 3’s mother and stepfather through his job as an Army Financial Counselor. The mother and stepfather both had limited investment experience and trusted Craffy because of his position with the Army.
	64. At Craffy’s direction, Customer 2 and Customer 3’s mother and stepfather caused $175,000 each of the Customers’ $200,000 in benefits to be directed to separate Roth IRA accounts at Brokerage Firm B, with Craffy as the broker.
	65. Neither Customer 2’s nor Customer 3’s account was discretionary. As such, Craffy was required to obtain authorization before conducting any trades in their accounts.
	66. Craffy did not discuss specific trades with Customers 2 and 3, their mother, or their stepfather before placing trades. Craffy did not receive written permission from Customers 2 or 3, their mother, or their stepfather before placing trades.
	67. All of Craffy’s trades in Customer 2’s and Customer 3’s accounts at Brokerage Firm B were unauthorized.
	68. Craffy omitted to disclose material facts, including the fact of his unauthorized trades in Customer 2’s and Customer 3’s accounts, to Customer 2, Customer 3, their mother, or their stepfather.
	69. Craffy also did not disclose that his frequent trading in Customer 2’s and Customer 3’s accounts was causing the value of each to decrease substantially, in part through commissions paid to Craffy for each trade. Instead, Craffy told their mother ...
	70. While Craffy was managing Customer 2’s account at Brokerage Firm B, Customer 2 suffered realized losses of approximately $76,000, of which about $42,000 was paid in fees and commissions, most of which went to Craffy. Customer 2 also suffered addit...
	71. Due to Craffy’s unauthorized trades in Customer 3’s account, she paid approximately $61,000 in fees and commissions, most of which went to Craffy.
	72. Craffy also misappropriated funds from Customer 3, described in Section III below, which significantly affected her account’s balances.
	3. Craffy made unauthorized trades in Customer 29’s brokerage account.
	73. Customer 29 was a Gold Star family member whose husband passed away while on active duty.
	74. Customer 29 met Craffy shortly thereafter through his work as a Financial Counselor. She believed that paperwork Craffy provided her was connected to a free program provided by the Army to widows.
	75. Customer 29 had no prior experience with investing, and she trusted Craffy because he worked for the Army.
	76. As a result, Customer 29 opened a Roth IRA account at Brokerage Firm B that Craffy managed, which she funded with $300,000 in death benefits she received following the death of her husband.
	77. Customer 29’s account was non-discretionary, meaning that Craffy was required to obtain permission from Customer 29 before placing any trades in her account.
	78. Craffy did not seek Customer 29’s permission to place trades in her account. Customer 29 was unaware of the specific trades Craffy placed in her account.
	79. All of Craffy’s trades in Customer 29’s account at Brokerage Firm B were unauthorized.
	80. Craffy omitted to disclose material facts, including the fact of his trades in Customer 29’s account, to Customer 29.
	81. While Craffy was managing Customer 29’s account, Customer 29 paid approximately $16,000 in fees and commissions, most of which went to Craffy, and also suffered unrealized losses of approximately $52,000.
	82. In sum, Craffy committed securities fraud by conducting unauthorized trades in 31 customers’ brokerage accounts. Craffy knew or recklessly disregarded that the trades were unauthorized, and he made false statements and made material omissions that...
	III.  CRAFFY MISAPPROPRIATed FUNDS FROM A THIRTEEN-YEAR-OLD CUSTOMER’S BROKERAGE ACCOUNT.
	83. As described above, Customer 3 was thirteen years old when Craffy managed her Roth IRA account at Brokerage Firm B. Craffy defrauded Customer 3 through a scheme to misappropriate funds from her securities account.
	84. Craffy knew and recklessly disregarded that he could not enter into a financial arrangement with or borrow money from customer accounts.
	85. For example, on December 21, 2021, Craffy signed Brokerage Firm B’s annual compliance questionnaire, in which he confirmed in a section entitled “Prohibited Acts” that he had never borrowed money from a customer.
	86. Nevertheless, Craffy persuaded Customer 3’s mother to provide him with a personal loan and suggested that he could borrow funds from Customer 3’s Roth IRA account. He further told Customer 3’s mother that the funds would be returned to Customer 3’...
	87. On or around March 11, 2022, Craffy sold two stocks in Customer 3’s Roth IRA account, generating sales proceeds of about $85,000.
	88. Craffy then directed Customer 3’s mother to withdraw $50,000 from Customer 3’s Roth IRA account. Craffy signed the retirement account withdrawal form as the broker on the account. The securities sales that Craffy made on or around March 11, 2022 f...
	89. Customer 3’s mother used the $50,000 withdrawn from Customer 3’s Roth IRA account to fund a $50,000 check that she wrote to Craffy, which Craffy deposited into his personal bank account.
	90. Although the word “gift” was written on the check, Craffy told Customer 3’s mother that the check was a loan that he was characterizing as a gift for tax purposes.
	91. Craffy did not disclose the loan from Customer 3’s Roth IRA account to Brokerage Firm B.
	92. Craffy did not repay the $50,000 from the purported loan to Customer 3’s Roth IRA account. Moreover, the $50,000 was not returned to Customer 3’s Roth IRA account within the approximately two-month time period that Craffy had promised when defraud...
	IV. CRAFFY VIOLATED REGULATION BEST INTEREST’s Care obligation BY EXCESSIVELY TRADING AND OVERLY CONCENTRATING his retail customers’ ACCOUNTS.
	93. Regulation Best Interest, which became effective on June 30, 2020, established a standard of conduct for broker-dealers and associated persons (including registered representatives like Craffy) when they recommend securities transactions or invest...
	94. The SEC issued an adopting release offering guidance on how the Commission interprets Regulation Best Interest. See Regulation Best Interest: The Broker-Dealer Standard of Conduct, Exchange Act Release No. 34-86031, 84 Fed. Reg. 33318 (July 12, 20...
	95. The Best Interest Obligation requires a broker, dealer, or a natural person associated with a broker or dealer, when making a securities-transaction or investment-strategy recommendation to a retail customer, to act in the best interest of that re...
	96. Regulation Best Interest defines a retail customer as “a natural person, or the legal representative of such natural person, who: (i) Receives a recommendation of any securities transaction or investment strategy involving securities from a broker...
	97. A registered representative who conducts a trade on behalf of a customer without that customer’s explicit authorization implicitly recommends the trades for that customer.
	98. The Best Interest Obligation is satisfied only by compliance with four component obligations: (1) the Disclosure Obligation to provide certain prescribed disclosure, before or at the time of the recommendation, about the recommendation and the rel...
	99. The Care Obligation requires a broker, dealer, or associated person to exercise reasonable diligence, care, and skill to “[h]ave a reasonable basis to believe that the recommendation is in the best interest of a particular retail customer based on...
	100. The Adopting Release states that what is in the best interest of a retail customer depends on the facts and circumstances of the recommendation, including “matching” the recommended security to the retail customer’s investment profile. Where the ...
	101. The Adopting Release states that, in addition to matching the recommendation to the customer’s suitability profile, a registered representative should also exercise reasonable diligence, care, and skill to consider reasonably available alternatives.
	102. The Care Obligation, as noted in the Adopting Release, also requires a broker, dealer, or associated person to exercise reasonable diligence, care, and skill to “have a reasonable basis to believe that a series of recommended transactions, even i...
	103. The Care Obligation applies to a series of recommended transactions, regardless of whether the broker-dealer exercises actual or de facto control over a customer’s account.
	104. Regulation Best Interest’s Adopting Release specifies that “a ‘series’ of recommended transactions is an established term under the federal securities laws and Self-Regulatory Organization rules that is evaluated in concert with existing guidepos...
	105. Craffy was thus prohibited under Regulation Best Interest from placing his financial or other interests ahead of his retail customers’ interests.
	106. Craffy made recommendations to at least six retail customers, through the numerous trades he conducted in their accounts, without a reasonable basis to believe these recommendations were in the best interests of his customers. Craffy further fail...
	107. Instead, Craffy made many recommendations that placed Craffy’s interests ahead of his retail customers.
	108. Craffy knew that his Gold Star family customers were not only grieving, but were also facing the loss of a source of income for their family in the years ahead.
	109. Further, Craffy knew that these customers were heavily reliant on the death gratuity and life insurance payments they had received. These funds were a significant source of his customers overall assets, and many customers needed to preserve these...
	110. As set forth below, Craffy also knew and recklessly disregarded that the customers’ investment profiles did not match the trades he made.
	111. Indeed, his customers often wanted and needed to maintain a conservative trading strategy. Frequently, their Gold Star family benefits were these customers’ only significant assets.
	112. By contrast, Craffy personally benefited from the trades he executed in these customers’ accounts, in part because he received commission payments on a per-transaction basis.
	113. To enable his risky, high-commission trading strategy, Craffy presented documents to Brokerage Firm A, Brokerage Firm B, and his customers that falsely portrayed their financial positions and investment strategies, examples of which are alleged i...
	114. In many cases, at his direction, Craffy’s customers—who were grappling with the recent loss of a loved one and often found the death benefit funds upsetting to deal with—signed the documents Craffy presented to them, trusting that he had filled t...
	115. Given the mismatch between his retail customers’ true investment profiles and the trades Craffy made and the positions he took, Craffy did not demonstrate reasonable diligence, care, or skill in determining that these actions were in his customer...
	116. More specifically, Craffy violated Regulation Best Interest in at least two ways described below.
	117. First, Craffy excessively traded in at least four retail customers’ accounts, which incurred high costs, including commissions that were mostly paid to him, and had a significant impact on the value of his customers’ accounts.
	118. Generally, a turnover rate1F  above 6 and a cost-to-equity ratio2F  above 20% are recognized as benchmarks for excessive trading.
	119. Craffy incurred large fees and commissions through his trading in the accounts of Customers 9, 2, 3, and 29, all of which had indicators of excessive trading. This trading was excessive under Regulation Best Interest because, among other things, ...
	120. Second, for three retail customers from approximately August 2021 through October 2022, Craffy recommended trades that resulted in their accounts being highly concentrated in one or a small number of corporate-issuer stocks. These concentration l...
	121.  The following examples—each involving retail customers—illustrate how Craffy’s trading violated Regulation Best Interest through excessive trading, high concentration, or both.
	1. Craffy Excessively Traded in Customer 9’s Brokerage Account and Exposed Her Funds to High Risks through Concentration.
	122. As described above, Customer 9 was a widow with three children, the oldest of whom was 13. Customer 9 told Craffy on several occasions that she wanted the money from her husband’s survivor benefits to be available for her children when they turne...
	123. For example, three days before she opened the account at Brokerage Firm B, Customer 9 wrote to Craffy in a text message, “I want to make sure the money is available for the kids…to help through college, maybe even set up a small nest egg for when...
	124. Craffy thus knew that Customer 9’s investment profile called for her to preserve her capital for short-term use.
	125. Instead, Craffy presented Customer 9 and Brokerage Firm B with documents that falsely described her risk tolerance as “aggressive” and stated that she wanted a “speculative growth” strategy.
	126. Craffy used these false statements to ensure that Customer 9’s Roth IRA account would provide him maximum flexibility to execute trades that would earn him significant commissions.
	127. Craffy then engaged in a series of transactions that excessively traded Customer 9’s account and did not match her investment profile, but instead put Craffy’s interest ahead of Customer 9’s best interest.
	128.  Specifically, by trading approximately 50 times in less than 10 months, Craffy generated approximately $73,000 in fees and commissions, most of which he personally received. His excessive trading had a cost-to-equity ratio of more than 24% and a...
	129. The large fees and commission payments Craffy incurred, the high turnover rate of the account, and the excessive cost-to-equity ratios of his trading demonstrate that Craffy did not have a reasonable basis for his recommendations to Customer 9.
	130. Craffy also engaged in a risky investment strategy that concentrated Customer 9’s account in a small number of single corporate-issuer stocks.
	131. For example, the following table shows how Craffy caused Customer 9’s brokerage account to be highly concentrated in certain stocks at the end of various months:
	132. Price volatility in any one of those stocks in each of the above-listed months could have caused significant losses for Customer 9. Craffy’s actions thus exposed Customer 9’s account to great risks from concentration and lack of diversification, ...
	133. Craffy’s excessive trading in Customer 9’s accounts and concentration of her funds in single corporate-issuer stocks was inconsistent with Customer 9’s investment profile and objectives. In doing so, Craffy failed to exercise reasonable diligence...
	2. Craffy Excessively Traded in Customer 2’s and Customer 3’s Brokerage Accounts.
	134. As described above, Customers 2 and 3 were minor children when their father died in active duty, leaving them each with approximately $200,000 in survivor benefits. Their mother and stepfather opened separate retirement accounts for them at Craff...
	135. Thus, Craffy knew that Customer 2’s and Customer 3’s investment profile required that they preserve their capital for short-term use.
	136. Nevertheless, Craffy caused forms to be submitted to Brokerage Firm B that contained a number of false statements.
	137. First, Craffy listed both Customer 2 and Customer 3 as having a net worth of $750,000 and a liquid net worth of $600,000.
	138. These figures were wildly inaccurate, as Craffy knew, because Customer 2’s and Customer 3’s assets each largely consisted of their father’s $200,000 death benefits.
	139. In addition, Craffy falsely listed Customer 2’s and Customer 3’s investment habits as “primary debt payment.” Neither Customer 2 nor Customer 3 had any significant debt.
	140. Craffy further falsely listed Customer 2’s and Customer 3’s risk tolerance as “aggressive,” their investment objectives as “Maximum Growth,” and their strategy as “speculative growth.” In fact, Craffy knew that each of these statements was false,...
	141. Craffy used the false statements on Customer 2’s and Customer 3’s investment documents to ensure that their Roth IRA accounts would provide him maximum flexibility to execute trades that would earn him significant commissions.
	142. Craffy then engaged in a series of excessive trades in Customer 2’s and Customer 3’s accounts that put his interests ahead of their best interest.
	143. Specifically, in a period of just over three months, Craffy conducted approximately 33 trades in Customer 2’s brokerage account. The turnover rate for this period was greater than 6.3 and the cost-to-equity ratio for the trades was greater than 2...
	144. Likewise, in a three-month period, Craffy made about 41 trades in Customer 3’s brokerage account, resulting in a turnover rate of greater than 6.2 and a cost-to-equity ratio of greater than 26%. These trades cost Customer 3 more than $56,000 in f...
	145. Under the well-recognized guideposts of excessive trading—a turnover rate above 6 and a cost-to-equity ratio of 20%—Craffy’s trades in Customer 2’s and Customer 3’s accounts were excessive. There was no reasonable basis for Craffy to conduct thes...
	146. The high turnover rates and the excessive cost-to-equity ratios in the accounts show that Craffy failed in his obligations under Regulation Best Interest to retail Customers 2 and 3. Instead, Craffy caused them to incur large fees and commissions...
	3. Craffy Excessively Traded in Customer 29’s Brokerage Account and Exposed Her Funds to High Risks through Concentration.
	147. When Customer 29 met Craffy, she was recently widowed with a seven-year-old son and was living with her in-laws until she could get enough money to move out into her own apartment, all of which was known to Craffy. Customer 29 believed that Craff...
	148. Customer 29 told Craffy that she wanted to save the money she was investing to be available for her son’s use. Customer 29 had no prior experience with investing and was not comfortable with the risk of losing her entire savings.
	149. Craffy knew that Customer 29’s investment needs were to preserve her capital and that pursuing risky strategies did not match her investment profile.
	150. Nevertheless, Craffy presented Customer 29 and Brokerage Firm B with documents that falsely described Customer 29’s risk tolerance as “Maximum Growth” and stated that she wanted a “speculative growth” strategy. Craffy also falsely represented tha...
	151. Craffy used these false statements to ensure that Customer 29’s Roth IRA account would provide him flexibility to execute trades that would earn him significant commissions.
	152. Craffy then engaged in a series of transactions that excessively traded Customer 29’s accounts and did not match her investment profile.
	153. Specifically, in just six weeks, Craffy executed approximately 12 trades that cost Customer 29 about $16,000 in fees and commissions, most of which were paid to him. The trades represented a cost-to-equity ratio of more than 36% and a turnover ra...
	154. The large fees and commissions Craffy caused Customer 29 to pay, the high turnover rate of the account, and the excessive cost-to-equity ratios of his trading demonstrate that Craffy did not have a reasonable basis for his recommendations to Cust...
	155. Instead, Craffy put his personal interests ahead of Customer 29’s best interest, causing her to pay fees and commissions of more than $16,000 in less than two months, most of which went to him personally.
	156. Craffy also engaged in a risky investment strategy that concentrated Customer 29’s account in a small number of single corporate-issuer stocks.
	157. For example, in September 2022 Craffy caused almost all of the funds in Customer 29’s Roth IRA account to be held in just two stocks.
	158. Concentrating almost all of her funds in two stocks placed Customer 29’s funds at great risk and did not match Customer 29’s investment profile. Indeed, Customer 29’s accounts realized losses from the sale of one of these stocks shortly after Cra...
	159. Given her investment profile, there was no reasonable basis for Craffy to concentrate almost all of Customer 29’s funds in just two stocks.
	160. Excessively trading in Customer 29’s accounts and concentrating her funds in single corporate-issuer stocks exposed Customer 29 to a higher risk of loss and did not match her investment profile. In doing so, Craffy failed to exercise reasonable d...
	4. Craffy Exposed Customer 25’s Brokerage Account to a High Risk through Concentration.
	161. Customer 25 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.
	162. Customer 25 had no investment experience before receiving these benefits and trusted Craffy because the Army had assigned him to help her.
	163. Craffy directed Customer 25 to open an account at Brokerage Firm B.
	164. Craffy knew that Customer 25 was retired, had a fixed income, and needed to preserve her capital. Forms that Craffy presented to Brokerage Firm B listed Customer 25’s risk tolerance as moderate and her investment goal as “Income and Growth,” mean...
	165. In spite of Customer 25’s need, as a retiree, to preserve her capital, Craffy caused her brokerage account to be highly concentrated in a small number of single corporate-issuer stocks, as set forth below:
	166. Price volatility in any one of those stocks in each of the above-listed months could have caused significant losses for Customer 25, depleting her retirement capital. Craffy’s actions thus exposed Customer 25’s account to great risks. Given her i...
	167. Craffy recommended trades that concentrated Customer 25’s assets in single corporate-issuer stocks, lacked diversification, and did not match Customer 25’s investment profile or objectives. Craffy failed to exercise reasonable diligence, care, an...
	5. Craffy Exposed Customer 8’s Brokerage Account to a High Risk through Concentration.
	168. Customer 8 lost her husband while he was on active-duty service in the U.S. Army. She met Craffy in his role as Financial Counselor.
	169. Craffy directed Customer 8 to open an account at Brokerage Firm B.
	170. At Craffy’s direction, Customer 8 invested approximately $340,000 of the survivor benefits and insurance payments she received as a result of her husband’s death.
	171. When she opened the investment account with Craffy, Customer 8 had a six-year-old daughter and was unable to obtain life insurance herself due to a medical condition. Thus, she told Craffy she wanted the funds she invested through him to be avail...
	172. In spite of this disclosed need, Craffy prepared contradictory forms on Customer 8’s behalf. On one, he accurately listed her investment goal as “Conservative Growth . . . I’m willing to accept a lower return to avoid risk of a major decline in t...
	173. Craffy disregarded Customer 8’s true investment profile in making trades in her account. He caused her Roth IRA account to be highly concentrated in a small number of single corporate-issuer stocks, as set forth below:
	176. Based on the foregoing, Craffy violated Regulation Best Interest by failing to exercise reasonable diligence, care, and skill and to have a reasonable basis to believe that his recommendations were in the best interest of his retail customers, ba...
	Violations of Securities Act Section 17(a)
	177. The Commission re-alleges and incorporates by reference here the allegations in paragraphs 1 through 92.
	178. Defendant Craffy, directly or indirectly, singly or in concert, in the offer or sale of securities and by the use of the means or instruments of transportation or communication in interstate commerce or the mails, (1) knowingly or recklessly empl...
	179. By reason of the foregoing, Defendant Craffy, directly or indirectly, singly or in concert, violated and, unless enjoined, will again violate Securities Act Section 17(a) [15 U.S.C. § 77q(a)].
	Violations of Exchange Act Section 10(b) and Rule 10b-5 Thereunder
	180. The Commission re-alleges and incorporates by reference here the allegations in paragraphs 1 through 92.
	181. Defendant Craffy, directly or indirectly, singly or in concert, in connection with the purchase or sale of securities and by the use of means or instrumentalities of interstate commerce, or the mails, or the facilities of a national securities ex...
	182. By reason of the foregoing, Defendant Craffy, directly or indirectly, singly or in concert, violated and, unless enjoined, will again violate Exchange Act Section 10(b) [15 U.S.C. § 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5].
	Violations of Regulation Best Interest’s General Obligation
	183. The Commission re-alleges and incorporates by reference here the allegations in paragraphs 1 through 25 and 93 through 176.
	184. By engaging in the conduct described above, when making recommendations of securities transactions to retail customers, Defendant Craffy failed to act in the best interest of the retail customers by failing to exercise reasonable diligence, care,...
	185. Also, by engaging in the conduct described above, Defendant Craffy made recommendations to retail customers without exercising reasonable diligence, care, and skill to have a reasonable basis to believe the recommendations were in the best intere...
	186. The failure of Defendant Craffy to comply with Regulation Best Interest’s Care Obligation constitutes a violation of Regulation Best Interest’s General Obligation.
	187. By reason of the foregoing, Defendant Craffy violated and, unless enjoined, will again violate Rule 15l-1(a)(1) of the Exchange Act [17 C.F.R. § 240.15l-1(a)(1)].
	PRAYER FOR RELIEF
	Sheldon Pollock
	Hane L. Kim
	Hayden M. Brockett
	Michael C. Ellis
	Bari R. Nadworny
	Ariel Atlas
	Attorneys for Plaintiff
	SECURITIES AND EXCHANGE COMMISSION
	New York Regional Office
	100 Pearl Street
	Suite 20-100
	[email protected]
	Date: Trenton, New Jersey
	Sheldon Pollock
	Hane L. Kim
	Hayden M. Brockett
	Michael Ellis
	Bari R. Nadworny
	Ariel Atlas
	Attorneys for Plaintiff:
	SECURITIES AND EXCHANGE COMMISSION
	New York Regional Office
	100 Pearl Street
	Suite 20-100
	[email protected]