Treff the Terrible

Abraham Treff, 19, was watching a newscast on TV last November when an interview with Ralph Nader came on. "I said that whatever he's doing the average American can do," Treff recalled. "My friends said I didn't know what I was talking about. So I said I'd investigate the stock market. So they all started laughing and said, 'What'll you find out about the stock market?' "

Treff found out that he could put Wall Street in an uproar. The Securities and Exchange Commission, the New York Stock Exchange and half a dozen embarrassed brokerage firms are investigating his brief fling at Naderism. He has forced the whole brokerage community to question its credit and trading procedures. In a five-week trading binge, Treff bought $200,000 in stock without ever meeting a broker face to face and, more astoundingly, without putting up any money at all.

Treff, an evening student of accounting at Philadelphia's St. Joseph's College, simply picked up the telephone, called brokerage houses in the Philadelphia area, New York City and Dallas, and said that he wanted to buy. He did not sign any of the customary documents for identification and credit information. Even so, of some 25 firms that he called, brokers at six* agreed to buy stock for him. Most of Treff's investments--including Polaroid, Alberto-Culver and Bristol-Myers--were sound. If he had held on to them, he claims he might have made $30,000 to $40,000 in profits within a few weeks. But Federal Reserve and stock exchange rules require that shares be paid for within five trading days of their purchase; the brokerage firms generally sold out Treff's positions some time after that period because he had not paid. Most of the firms incurred small losses in the transactions, but one--Weis Voisin --earned $143. The houses can sue Treff to recover both actual and punitive damages, but they may not want to risk further publicity.

Treff began to attract suspicion after he tried to buy 300 shares of Natomas; the stock exchange had been rather routinely investigating reports of other phony orders in the mercurial stock, and stumbled on to Treff's trading. After an SEC investigator called Treff two weeks ago, he went to Manhattan and gave the exchange a report of his shenanigans. "I was trying to show that the brokerage firms weren't going according to the rules," he explained.

The exchange is investigating Treff for possible violations of federal anti-fraud regulations. At the same time, the exchange and the SEC are both trying to determine whether the brokerage salesmen involved were so hungry for commissions that they broke a Big Board rule requiring them to "use due diligence to learn the essential facts relative to every customer." Reynolds Securities, which handled more than $100,000 of Treff's trades, has fired the salesman who dealt with him. All salesmen involved in the incident were ordered to appear before stock exchange officials. Exchange administrators plan to tighten enforcement of trading and credit rules. Eventually, they suggest, customers may find it more difficult to open an account, or even to make transactions over the phone.

* Merrill Lynch; Paine, Webber; Reynolds Securities; White, Weld; Weis Voisin; and Yarnall, Riddle.

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