Upstart · Governance finding · severity 2 of 5
In re Upstart Holdings Securities Litigation, filed on 26 July 2022 in the US District Court for the Southern District of Ohio, alleges that Upstart and its executives misled investors, including about its AI underwriting model. In September 2023 the court let claims proceed over statements about the advantages of the AI model over FICO-based models and its ability to "quickly adjust" to changing economic conditions, among others. It certified an investor class in March 2025, allowed an amended complaint in September 2025, and on 30 September 2026 kept most claims against hedge fund Third Point. Upstart says the remaining claims are without merit. No ruling on liability has been made.
Record last reviewed Oct 21, 2026 · Markdown
Date
Institution
Country
United States
AI system
AI underwriting model that evaluates borrowers and prices personal loans · vendor: Upstart
AI?
Described as AI by the institution or regulator
The institution, a regulator or a court called the system AI.
Category
Status
Court filing
Severity
2 of 5
Impact
The class seeks unspecified damages for investors who bought Upstart securities between 16 December 2020 and 8 November 2022. Upstart says it cannot estimate a reasonably possible loss. Shareholder derivative suits over the same allegations, in Ohio and Delaware, are stayed until the class action is resolved. No customer harm is alleged.
What happened?
On 26 July 2022 a shareholder sued Upstart, its chief executive and its chief financial officer in the Southern District of Ohio, alleging false or misleading statements about the company's business, operations and prospects under Sections 10(b) and 20(a) of the Exchange Act. A consolidated amended complaint in December 2022 added two more executives, the hedge fund Third Point and its chief executive, and Third Point Ventures and its managing partner, a former Upstart board member.[1]
The court's opinions summarise the allegations. Upstart uses an AI underwriting model instead of the traditional FICO model to decide whether to lend and at what rate, and it claimed the model would produce "better" loans with "higher approval rates and lower interest rates at the same loss rate". Executives said the model could respond to macroeconomic changes "on really a dime". As interest rates rose, Upstart began holding more loans on its balance sheet that it could not sell. According to the complaint, its shares fell 56% after the first-quarter 2022 earnings call at which the chief financial officer described using the balance sheet as a "funding buffer".[3]
On 29 September 2023 Judge Algenon Marbley partly denied Upstart's motion to dismiss. Securities-fraud claims survived only for five groups of statements, the first two being "statements about the advantages of Upstart’s AI underwriting model over traditional, FICO-based models" and "statements about the ability of the model to ‘quickly adjust’ to changing macroeconomic conditions". The claims against Third Point were dismissed at that stage.[2]
On 27 March 2025 the court certified a class of investors who bought Upstart securities between 16 December 2020 and 8 November 2022. It allowed a first amended complaint in September 2025 that again named Third Point. On 30 September 2026 it dismissed only the control-person claim against Third Point and a former director and kept the other claims, again holding that statements that the AI model "changes in real time" were actionable.[1][3][4]
When did it happen?
- Jul 26, 2022
Crain v. Upstart Holdings is filed in the Southern District of Ohio.[1][5]
- Dec 5, 2022
Lead plaintiff files a consolidated amended complaint that adds executives and Third Point.[1]
- Sep 29, 2023
The court partly denies dismissal, keeping claims over Upstart's statements about its AI model's advantages and its ability to adjust quickly.[2]
- Mar 27, 2025
The court certifies a class of investors who bought between December 2020 and November 2022.[3]
- Sep 29, 2025
The court allows a first amended complaint that adds back Third Point.[1]
- Sep 30, 2026
The court dismisses the control-person claim against Third Point and a former director and keeps the remaining claims.[4]
What was the impact?
- Other: The class seeks unspecified damages for investors who bought Upstart securities between 16 December 2020 and 8 November 2022. Upstart says it cannot estimate a reasonably possible loss. Shareholder derivative suits over the same allegations, in Ohio and Delaware, are stayed until the class action is resolved. No customer harm is alleged.[1][3]
Severity 2 of 5: Alleged investor losses over a two-year class period; a class has been certified and claims about the AI model survived dismissal, but there is no finding of liability, settlement or regulatory action, and no customer harm.
How did Upstart respond?
In its quarterly filing for the second quarter of 2026, Upstart says it "believes the remaining claims in the action are without merit and intends to defend itself vigorously". The company had asked the court to reconsider the September 2023 dismissal ruling, which the court refused on 5 August 2024.[1]
What was the outcome, and did regulators act?
Pending. As of 21 October 2026 the certified class action continues in the Southern District of Ohio against Upstart, its executives and Third Point. No settlement, trial date or finding of liability has been reported, and no regulator has acted on the allegations.[1][4]
What is the Upstart securities class action about?
Investors allege that Upstart misled them between December 2020 and November 2022 about its business, including its claims that its AI underwriting model beat FICO-based models and could adjust quickly to economic changes, and about the loans it was holding as rates rose. The case was filed in July 2022 in the Southern District of Ohio.
Did the court rule that Upstart's AI claims were false?
No. The court decided only that some statements about the AI model's advantages and adaptability are specific enough to be challenged, so those claims could go forward. It has certified a class, but no court has found that the statements were false or that Upstart is liable.
Is this an AI-washing case?
It is close. The surviving claims centre on how Upstart described its AI model to investors, which is the core of AI-washing allegations. But it is a private securities suit rather than an SEC action, it also covers loan-retention statements, and it has not been decided. We list it as litigation.
What does Upstart say about the lawsuit?
In its August 2026 quarterly filing, Upstart says it believes the remaining claims are without merit, that it will defend itself vigorously, and that it cannot estimate a possible loss. Related shareholder derivative suits in Ohio and Delaware are stayed until the class action is resolved.
- Upstart Holdings Form 10-Q for the quarter ended June 30, 2026 — Note: Legal official
- In re Upstart Holdings, Inc. Securities Litigation — Opinion & Order on motions to dismiss (ECF No. 68) court
- Crain v. Upstart Holdings, Inc. — Opinion & Order granting class certification court
- In re Upstart Holdings, Inc. Securities Litigation — Opinion & Order on Third Point and Schwartz motion to dismiss (ECF No. 181) court
- Crain v. Upstart Holdings, Inc. et al, 2:2022cv02935 — docket court
When AI goes wrong at a bank, the next morning's brief says so.
when one of these regulators moves, the next morning's brief says so · six sourced stories · 7 am PT · free
plus every regulation, bank and agent page update, the morning after · leave any morning