A class of investors sued fintech Upstart this week, accusing several of its executives of making materially false and misleading statements about the company’s business and prospects, especially regarding a proprietary artificial intelligence model it debuted in May 2025.
“Defendants touted the purported accuracy of Model 22, claiming that it was increasing loan approval rates and, accordingly, the Company’s revenues and growth,” the investors wrote in a lawsuit filed Tuesday in the U.S. District Court for the Northern District of California.
The investors are seeking damages for securities they purchased between May and November 2025.
Upstart issued its financial guidance for 2025 in February of that year, estimating it would report revenue of roughly $1 billion – $920 million of which would come from fees.
The company adjusted its expectations upward twice. In May, Upstart projected roughly $1.01 billion in revenue but with the same figure for fees. Then in August – citing performance improvements driven by Model 22, the investors said – the fintech estimated its revenue would reach $1.055 billion for the year, with a $70 million uptick in revenue from fees to $990 million.
However, in November, Upstart reported third-quarter revenue of $277 million, missing its previous estimate by nearly $3 million.
The fintech then adjusted downward its fourth-quarter expectations – to $288 million from a previous estimate of $303.7 million. Further, the company tempered its full-year $1.055 billion revenue estimate to $1.035 billion – and the fee figure from $990 million to $946 million, the defendants said.
At an earnings call later in the day, company executives said Model 22 “overreact[ed]” to macroeconomic signals in the quarter, reducing borrower approvals and conversion rates.
Investors said the defendants also acknowledged “knowingly” calibrating their AI model to be “more conservative on the credit side in earlier parts of the quarter” and that Model 22’s “overresponsive[ness]” to macroeconomic signals in the quarter would continue to negatively impact revenues in the fourth quarter.
Upstart’s stock price fell $4.49 per share, or 9.71%, the following day, investors said.
The investors noted, however, that during the May-to-November time frame for which they’re seeking damages, Upstart’s CEO, CFO and chief technology all sold shares of stock worth a combined $15 million. The executives are each named as individual defendants in the suit.
“Because of their positions with Upstart, and their access to material information available to them but not to the public, the Individual Defendants knew that the adverse facts specified herein had not been disclosed to and were being concealed from the public, and that the positive representations being made were then materially false and misleading,” the plaintiffs said in Tuesday’s lawsuit. “The Individual Defendants are liable for the false statements and omissions pleaded herein.”
