Upstart faces securities class action over AI model flaws

Pomerantz LLP filed a securities class action against Upstart Holdings Inc. and certain officers, alleging the company misled investors about its artificial intelligence underwriting model between May 14 and Nov. 4, 2025.

"The company's AI models were having a negative impact on its business performance," the complaint states, citing Upstart's "Model 22" system that frequently overreacted to negative macroeconomic signals.

The lawsuit, docketed as 26-cv-02974 in the US District Court for the Southern District of New York, seeks damages under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. It claims Upstart overstated Model 22's accuracy and its ability to increase loan approval rates, and that the model's conservative credit assessment rendered the company's full-year 2025 revenue guidance unreliable. Investors who purchased Upstart securities during the class period have until June 8 to seek appointment as lead plaintiff.

At least three other law firms — the Schall Law Firm, Bronstein Gewirtz & Grossman LLC, and the Rosen Law Firm — have issued similar notices to investors, signaling a coordinated wave of shareholder litigation. Upstart, which uses machine learning to originate personal loans, has seen its stock face pressure as questions about its AI model's performance emerged. The company has not yet responded to the allegations. A lead plaintiff will be selected by the court to direct the litigation on behalf of the class, with the case likely to test whether Upstart's disclosures about its proprietary underwriting technology met federal securities law standards.

This article is for informational purposes only and does not constitute investment advice.