A 50-year-old Harlem educator is giving her UBS broker failing grades after she lost $400,000 from her Puerto Rico muni bond fund.
Vivian Falto claims her broker ignored plenty of red flags as Puerto Rico’s bond prices began to fall — and even turned aside her concerns about the collapsing bond market in the island paradise and advised her to stay the course.
The advice turned her life into a financial hell, she claims.
“He assured me the bonds were secure and there was no risk,” she told The Post in a recent interview.
Falto’s financial nightmare began in 2011, when she inherited money after her father — a successful businessman in Puerto Rico — died.
Shortly thereafter, she met with her mother’s broker at UBS for advice. The broker encouraged her and her mother to invest $800,000 in what he pitched as safe and secure local municipal bonds, she said.
At the same time, the broker also pushed her to take out a line of credit from the bank rather than use cash to pay for a one-bedroom apartment in New York, according to Falto.
So she did, taking out $484,000 in loans.
“I wanted to pay all my debts and buy an apartment in New York City,” she said.
When Detroit’s financial problems hit the headlines, Falto’s world began to crumble.
After Detroit filed for bankruptcy in July 2013, some experts felt Puerto Rico would be next — and Puerto Rico bond prices tumbled.
Falto said she told her UBS broker she wanted “to start selling [assets] and lower the credit line” but was told by the broker “to wait until the portfolio is worth more.”
Investors who — like Falto — stayed in the UBS funds suffered losses of as much as 60 percent during that time.
If Falto’s financial loss, about $400,000, wasn’t enough, she was about to be hit with a surprise second hard knock.
UBS told her she had to pay the bank $35,000 to get her account balance up to the amount of her loan.
“I have no cushion anymore,” a very worried Falto told The Post. “I’m concerned.”
Falto felt she was wronged, and fought back.
She hired lawyer Jake Zamansky and, like many UBS muni bond fund investors, filed an arbitration case against the bank.
Falto claims UBS misled her about the riskiness of those bond funds for at least two years leading up to the crisis, and that it continued to push them despite growing signs that Puerto Rico’s debt situation was deteriorating.
UBS contends that Falto told her broker that “her risk profile was moderate and she never told UBS that she wanted to invest conservatively.”
UBS, which claims it manages roughly half the island’s brokerage assets, plowed most of its Puerto Rico retail investors into 23 closed-end funds (CEFs) that it manages and sells.
The funds had a leverage ratio of nearly 50 percent — meaning they borrowed money to buy Puerto Rico’s debt — and were concentrated in bonds on which UBS had also led the underwriting.
“These funds are concentrated in a couple of different issuances that performed much worse than other Puerto Rican munis,” Securities Litigation and Consulting Group principal Edward O’Neal — an expert in Puerto Rico bonds who has testified in a Securities and Exchange Commission case against UBS — told The Post.
While some Puerto Rican bonds have recovered sharply in value in 2014, the UBS closed-end funds have not.