SEC Agreement Violation - Firm Demands Jury Trial

Securities and Exchange Commission says that fund and its investors lost $1.6M as a result of a breach of Fiduciary Duty.

Sources: See SEC.gov for court-filed document; Synopsis available in Investment News

A registered investment advisor firm and its owner have been accused of violating an agreement with the SEC regarding operation of a highly concentrated fund that was contrary to what investors were told.

David Yow Shang Chiueh of East Hanover, New Jersey, founded Upright Financial Corp. in the nineties along with Upright Investments Trust which operates a series of investment funds.

The RIA firm and Chiueh, as investment advisors to the trust company’s Upright Growth Fund, entered into a settlement agreement with the SEC in 2021 in relation to charges that they had made investments that were inconsistent with its classification as a diversified investment company and its concentration policy. Certain filings and shareholder reports reinforced the expectation of diversification.

However, the SEC’s investigation found that more than 25% of the fund’s assets were invested in a single industry over multiple years (2017-2021), violating its policies. The SEC said that both Upright and Chiueh committed fraud and breached their fiduciary duties. They were fined $90,000, ordered to pay disgorgements of more than $290,000, and agreed to cease any misconduct.

Despite the agreement, the SEC this week filed charges against Upright and Chiueh alleging that they have breached the settlement agreement and continued to commit fraud until at least June 2024. The commission says that failure to sell the relevant stock to bring the fund in line with its stated concentration policy led to the loss of $1.6 million for the fund and its investors.

“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,” said Corey Schuster, Chief of the Division of Enforcement’s Asset Management Unit. “Undeterred by their prior SEC settlement involving these very same issues, we allege that the defendants repeatedly violated fundamental rules designed to protect investors in mutual funds.”

The SEC’s complaint also alleges that Upright and Chiueh committed further misconduct by not having the required number of independent trustees for the fund’s board and misrepresenting the independence of one trustee on filings.

The allegations have not been proven in court. A jury trial has been demanded.