A class-action lawsuit has been filed against Upstart Holdings, Inc. (NASDAQ: UPST), an AI lending marketplace, alleging the company and its officers made false and misleading statements about its flagship AI lending model. The suit, filed on behalf of investors, covers a class period from May 14, 2025, to November 4, 2025.
According to the complaint filed by Bronstein, Gewirtz & Grossman, LLC, the defendants failed to disclose critical flaws with its "Model 22" AI underwriting algorithm. The lawsuit alleges the model "frequently overreacted to negative macroeconomic signals" and that its overall accuracy was overstated, rendering the company's financial guidance unrealistic.
The issue came to a head on November 4, 2025, when Upstart reported third-quarter revenue of $277 million, missing its own guidance of $280 million. The company also provided a weak forecast for the fourth quarter, causing its stock to fall $4.49 per share, or 9.71%, to close at $41.75 on November 5, 2025.
The lawsuit seeks to recover damages for investors who suffered losses due to the company's alleged misrepresentations. The core of Upstart's business model is its AI's ability to underwrite consumer credit more effectively than traditional methods. The allegations strike at the heart of the company's value proposition, suggesting its technology was not performing as advertised.
Multiple law firms, including The Schall Law Firm and Faruqi & Faruqi, LLP, have announced investigations and reminded investors of the lawsuit. The complaint details how Upstart's executives admitted during a November 2025 earnings call that the model had "overreacted" and that they had "knowingly" calibrated it to be more conservative, impacting loan approval rates and revenue.
Upstart's platform is designed to connect consumers seeking personal, auto, and other loans with its partner banks and credit unions. The company's AI models are central to this process, using a vast amount of data to assess borrower risk.
The lawsuit against Upstart challenges the fundamental reliability of its core technology, which had been a key driver of its valuation. The next key date is the June 8, 2026, deadline for investors to move the court to be appointed as lead plaintiff in the case.
This article is for informational purposes only and does not constitute investment advice.