The Securities and Exchange Commission (SEC) has filed charges against David Yow Shang Chiueh, an investment adviser based in East Hanover, New Jersey, along with his firm, Upright Financial Corp. The charges stem from multiple violations, including excessive investment concentration and fraudulent activities that led to significant financial losses for investors.
Investment Misconduct Leads to $1.6 Million in Losses
According to the SEC, Chiueh and his advisory firm allocated more than 25% of the Upright Growth Fund’s assets into a single company over several years. This high-risk strategy resulted in approximately $1.6 million in investor losses.
The SEC’s investigation revealed that, in November 2021, Chiueh and Upright Financial Corp. had previously settled charges for similar violations. Between July 2017 and June 2020, the firm had breached its own policies by concentrating over 25% of its assets in one industry. This led to allegations of fraud and fiduciary duty violations.
Despite the prior settlement and regulatory orders, the SEC claims that the firm continued its misconduct from November 24, 2021, to June 23, 2024. During this period, Chiueh and Upright Financial Corp. not only exceeded the industry concentration limits again but also misrepresented their compliance with those limits. Their failure to act promptly resulted in further financial losses to investors.
Corporate Governance Failures and Misleading Statements
Beyond improper investment practices, the SEC’s complaint also highlights governance violations within the Upright Growth Fund. The firm allegedly operated with an insufficient number of independent trustees on its board. Additionally, it falsely portrayed the independence of one trustee in regulatory filings.
The SEC further alleges that the firm withheld critical information from the fund’s board and improperly appointed an accountant without obtaining the necessary board approval. These actions, according to the SEC, compromised the integrity of the firm’s oversight and governance structure.
Regulatory Response to Repeated Violations
Corey Schuster, Chief of the SEC’s Division of Enforcement’s Asset Management Unit, strongly condemned the firm’s actions. “As alleged, the defendants not only ran the fund contrary to its fundamental investment policies, but they actively misled investors and the fund’s board about their conduct,” Schuster stated.
Despite their previous SEC settlement over identical issues, Chiueh and his firm allegedly continued to flout regulations designed to protect mutual fund investors. The SEC asserts that these repeated violations demonstrate a blatant disregard for compliance and fiduciary responsibilities.
Legal Actions and Penalties Sought by the SEC
The SEC’s complaint seeks severe penalties for Chiueh and Upright Financial Corp., including:
Permanent Injunctive Relief: To prevent the defendants from engaging in similar misconduct in the future.
Return of Ill-Gotten Gains: Recovery of any profits obtained through fraudulent practices.
Civil Penalties: Financial penalties to hold the defendants accountable for their violations of federal securities laws.
The charges include violations of key provisions under the Investment Advisers Act and the Investment Company Act, along with antifraud provisions of federal securities laws. If found guilty, Chiueh and his firm could face significant legal and financial consequences.
Implications for Investors and the Financial Industry
This case underscores the critical importance of compliance and transparency in investment advisory services. Investors rely on fund managers to adhere to regulations and act in their best interests. The SEC’s aggressive stance against Chiueh and his firm signals heightened scrutiny for firms that attempt to bypass fundamental investor protection rules.
As regulatory bodies continue to crack down on fraudulent activities, investment firms must ensure adherence to industry regulations and maintain ethical governance practices to avoid legal repercussions and protect investor interests.
Editor’s Note: Readers are reminded that the SEC often over-charges, and ultimately backs down on its charges once a target mounts a defense. Unless the release indicates that the respondent has settled the charges, these are the SEC’s allegations, not evidence of wrongdoing. The respondent has not yet had the opportunity to present evidence or to counter the allegations contained in the SEC Press Release.
Sallah Astarita & Cox, LLC - Securities Litigation Attorneys - former SEC Staff Attorneys and Brokerage Firm Counsel representing issuers, advisors and investors nationwide in securities investigations, disputes, and arbitrations, nationwide. Call 212-509-6544.
Mark Astarita is a nationally recognized securities attorney, who represents investors, financial professionals and firms in securities litigation, arbitration and regulatory matters, including SEC and FINRA investigations and enforcement proceedings.
He is a partner in the national securities law firm Sallah Astarita & Cox, LLC, and the founder of The Securities Law Home Page - SECLaw.com, which was one of the first legal topic sites on the Internet. It went online in 1995 and is updated daily with news, commentary and securities law related links.
