New Jersey Adviser Faces New SEC Charges After Ignoring Prior Settlement

The SEC’s latest enforcement action against New Jersey-based investment adviser David Yow Shang Chiueh and his firm, Upright Financial Corp., highlights the troubling reality that some asset managers continue to violate investor trust despite facing regulatory scrutiny and penalties. According to the SEC, Chiueh and Upright failed to correct past misconduct following their 2021 settlement and doubled down on the same violations, leading to $1.6 million in losses for retail investors in the Upright Growth Fund.

The new charges, filed in federal court on March 17, 2025 (SEC v. Chiueh and Upright Financial Corp., No. 2:25-cv-01920), allege that Chiueh and Upright continued to violate the fund’s investment concentration policies and misled both investors and the board. The SEC complaint outlines violations of antifraud provisions across multiple federal securities laws, including the Securities Act, the Exchange Act, the Investment Advisers Act, and the Investment Company Act.

Despite agreeing to stop breaching the fund’s industry concentration limits and misrepresenting its holdings, the firm allegedly continued these practices for another two and a half years. The renewed charges underscore persistent oversight, governance, and accountability gaps, raising essential questions about how investors and allocators can better identify red flags and mitigate risk.

A Pattern of Noncompliance

The new charges stem from a 2021 settlement between the SEC, Chiueh, and Upright Financial Corp. At the time, the SEC found that the firm had violated its stated investment policy by allocating over 25% of the fund’s assets to a single industry. An over-concentration risk is explicitly prohibited in its fund documents. These violations were deemed fraudulent, and the firm was ordered to cease and desist.

According to the SEC, the 2021 order was largely ignored. From November 2021 through June 2024, Chiueh and Upright allegedly continued to exceed the fund’s concentration limit by putting too much money in one company. Rather than promptly rebalance or divest, the firm waited more than two and a half years to exit the position, incurring significant losses for investors. While the SEC did not publicly quantify the exact level of over-concentration, the duration and resulting $1.6 million in losses suggest the breach was not marginal but a significant and sustained deviation from policy.

The SEC also alleges that Chiueh misrepresented compliance with the 25% limit and failed to disclose material facts to the fund’s board. The SEC has not named the fund’s auditor or alleged audit failures in the complaint. This aligns with standard audit practices, as financial statement auditors are not typically responsible for testing investment guideline compliance unless those breaches result in material misstatements or misleading disclosures. Still, the case underscores a critical oversight gap that violations of stated strategy can persist undetected when no separate compliance or governance function verifies that managers are doing what they claim.

Though an April 2025 amendment to the complaint removed specific charges related to board composition and misrepresentation of independence, the broader picture demonstrates that governance was flawed, oversight was minimal, and investor protections were subordinated to managerial discretion.

Upright initially served as the investment adviser and fund administrator, overseeing its NAV calculations. Although third-party administrators were later brought in, these changes came well after the original misconduct had taken root.

According to Upright’s September 2023 Form N-CSR filing, Mutual Shareholder Services, LLC (MSS) was engaged in March 2023 and assumed fund administration and transfer agency services, while Empirical Administration, LLC was engaged to provide compliance testing and act as the chief compliance officer. Empirical was terminated three months later, and compliance testing was outsourced again. Brandon Pokersnik, who served as Chief Compliance Officer, was also President of Empirical and an employee of MSS, raising clear questions about independence and oversight. These overlapping roles, short-lived appointments, and unusually low fees for critical functions were red flags that investors and the board shouldn’t have overlooked.

Red Flags and Missed Signals

From an allocator’s perspective, this case is an essential reminder that regulatory settlements do not guarantee future compliance. A prior enforcement history can sometimes indicate a deeper cultural or ethical failure within a firm. While many advisers make good-faith efforts to improve after regulatory scrutiny, others may view settlements as the cost of doing business, especially in thinly capitalized firms with limited internal oversight.

In Upright’s case, several warning signs stand out:

• Lack of Remedial Action: The firm failed to diversify holdings meaningfully despite a settlement involving over-concentration.
• Opaque Governance: The alleged failure to provide full information to the board and a questionable trustee independence process suggest an intentional effort to operate without meaningful checks.
• Extended Holding of Risky Position: A 2.5-year delay in divesting from a concentrated stock, even after investor losses began to mount, shows a disregard for risk management principles.
• Overlapping Roles and Lack of Independence: The CCO simultaneously held roles at the fund’s administrator and compliance firm, weakening internal checks and raising conflict of interest concerns. Investors should look for a separation between control functions and operational service providers.
• Retail Investor Exposure: The affected investors were retail investors, making the situation especially egregious since these are the stakeholders the SEC’s Investment Company Act rules are designed to protect.

Key Takeaways for Investment Managers

This case also carries a warning for investment managers. While pursuing alpha is central to active management, it cannot come at the expense of stated investment policies, fiduciary duties, or regulatory boundaries.

The following takeaways are especially relevant:

1. Investment Guidelines Aren’t Optional: Managers may be incentivized to override investment limits when they believe a concentrated bet could deliver outsized returns. However, written policies, especially those disclosed in offering documents, are binding. If these issues are ignored, investors will face risk, and regulators will increase scrutiny.
2. Performance Doesn’t Justify Noncompliance: Even if a concentrated position outperforms, breaching a fund’s documented limitations is still an SEC regulatory violation. SEC enforcement actions often hinge on the failure to follow the process, not just the result.
3. Document and Justify Risk-Based Decisions: If a manager believes a deviation may be warranted or aligns with the investors’ best interest, it must be approved through proper governance channels, including the fund board, when applicable. Transparency and documentation are key.
4. Develop Internal Checks to Prevent Strategy Drift: Regular compliance reviews, clear escalation protocols, and objective third-party oversight can prevent decisions from drifting too far outside approved mandates.
5. Cultural Integrity as the First Line of Defense: A firm’s culture ultimately determines whether investment guidelines are treated as a floor or a ceiling. A culture of accountability and investor-first decision-making can mitigate the temptation to rationalize policy breaches.

5 Key Lessons for Allocators and Investors

This case also underscores the importance of due diligence not just at the outset of an investment but on an ongoing basis.

Here are five takeaways for investors, consultants, and asset allocators looking to avoid similar pitfalls:

1. Past Behavior Should Reframe Future Risk: Allocators should closely monitor how a manager remediates issues after enforcement, including whether governance structures, investment controls, and compliance oversight are materially improved.
2. Substantiate Compliance Representations: Stated adherence to investment policies shouldn’t be taken at face value. Where possible, seek supporting evidence, particularly in leanly resourced operations where internal oversight may be more limited.
3. Review Board Governance Structure and Activity: A functioning and independent board is essential in smaller mutual fund complexes. Ask whether board members are independent and how frequently they meet to oversee key decisions.
4. Assess Culture and Controls: A manager’s response to regulatory scrutiny reveals more than policies; it reflects their ethics and integrity. Monitor for clear changes in tone, governance, and compliance rigor after an incident. If a firm continues to minimize issues, retain conflicted roles, or show no meaningful shift in oversight, it may signal a culture that tolerates cutting corners. Strong controls are only as effective as the integrity behind them.

The Bottom Line

The SEC’s repeat charges against David Chiueh and Upright Financial Corp. reinforce a critical point: When managers consistently disregard documented policies and fail to reform post-enforcement, the issue often runs deeper than poor judgment; it reflects a breakdown in fiduciary culture. These aren’t process failures but indicators of a willingness to sidestep investor protections.

For investors, the key takeaway from this case is the importance of thorough due diligence, continuous oversight, and a willingness to walk away from managers whose track records suggest a tolerance for cutting corners. It’s critical to recognize that fraud doesn’t always take the form of theft but could manifest as chronic opacity, strategic drift, or a willful disregard for governance. When investor trust breaks down, and oversight fails, the damage inevitably falls on investors to absorb.

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