The Upstart Lawsuit: Investors Allege Misleading Statements and Revenue Adjustments
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.
According to a lawsuit filed in the U.S. District Court for the Northern District of California, the investors claimed that Upstart had touted the accuracy of its Model 22, stating that it was increasing loan approval rates and, consequently, the company’s revenues and growth.
Financial Guidance and Adjustments
Upstart had issued financial guidance for 2025 in February of that year, estimating it would report revenue of roughly $1 billion, with $920 million coming from fees.
The company revised its expectations twice during the year. In May, Upstart projected revenue of approximately $1.01 billion, with no change in fees. By August, citing performance improvements due to Model 22, the fintech estimated revenue would reach $1.055 billion, with fees increasing to $990 million.
However, in November, Upstart reported third-quarter revenue of $277 million, falling short of its previous estimate by nearly $3 million.
The company then adjusted its fourth-quarter expectations to $288 million from the earlier estimate of $303.7 million. Additionally, the full-year revenue estimate was reduced to $1.035 billion, with fees dropping to $946 million.
Revelations and Stock Price Impact
During an earnings call, Upstart executives attributed the revenue shortfall to Model 22 “overreacting” to macroeconomic signals, leading to reduced borrower approvals and conversion rates.
Investors pointed out that the executives had sold shares worth $15 million between May and November, the period for which damages were being sought. The CEO, CFO, and chief technology officer were named as individual defendants in the lawsuit.
The investors alleged that the executives, due to their positions and access to non-public information, knew that certain adverse facts were being concealed from the public, rendering the positive representations about the company false and misleading.
Following these revelations, Upstart’s stock price dropped by 9.71% the next day.
Conclusion
The lawsuit against Upstart highlights the importance of transparency and accuracy in financial reporting. Investors have raised concerns about the alleged misleading statements made by the company’s executives and the subsequent adjustments in revenue expectations.
As the legal proceedings unfold, the impact of these allegations on Upstart’s reputation and future business prospects remains to be seen.
