#United States #New York #Pomerantz LLP #Upstart Holdings #Model 22

Pomerantz Law Firm Files Class Action Against Upstart Holdings, Inc.

In a significant legal development, Pomerantz LLP has announced the filing of a class action lawsuit against Upstart Holdings, Inc. (NASDAQ: UPST) and specific executives. This suit is based in the United States District Court for the Southern District of New York, under the docket number 26-cv-02974. The action targets all individuals and entities, excluding the defendants, that purchased or otherwise acquired Upstart securities during the period spanning from May 14, 2025, to November 4, 2025.

The lawsuit aims to hold the defendants accountable for alleged violations of federal securities laws, seeking recovery for damages under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, along with Rule 10b-5, which governs securities fraud. Investors who acquired Upstart securities within the specified timeframe have until June 8, 2026, to apply for designation as Lead Plaintiff for the class action.

Upstart Holdings operates a cloud-based artificial intelligence (AI) lending platform across the United States. The company offers a variety of lending products, including unsecured personal loans, small dollar loans, automotive refinancing, retail loans, and home equity lines of credit. Upstart claims that its proprietary AI models enhance the evaluation of loan risk—an approach they refer to as “risk separation.” This method reportedly results in higher approval rates and lower interest rates compared to traditional lending methods, ultimately yielding more stable returns for their financial partners, which include banks, credit unions, and institutional investors.

In May 2025, Upstart introduced its newest AI model, known as “Model 22,” and generated considerable buzz by asserting its accuracy in improving loan approval rates and, consequently, the company’s financial growth. By February 2025, Upstart projected substantial revenues for fiscal year 2025, estimating around $1 billion, inclusive of approximately $920 million from fees. This guidance was later refined to $1.01 billion in May 2025 and further raised to an impressive $1.055 billion in August 2025, citing operational improvements attributed to Model 22.

However, the allegations in the complaint suggest that throughout the class period, the company's executives made materially false and misleading statements regarding Upstart’s business, operational practices, and future prospects. Key points cited include a lack of disclosure about Model 22's tendency to inaccurately react to adverse macroeconomic conditions, which misrepresented the model's overall performance and led to overestimated loan approval rates. Furthermore, the executives reportedly did not adequately communicate that Model 22’s overly cautious evaluations had a detrimental impact on Upstart’s projected revenue, leading to unrealistic financial guidance.

The situation began to unfold on November 4, 2025, as Upstart released their financial results for the third quarter of 2025. The report showed a notable revenue shortfall of $277 million, missing prior guidance of approximately $280 million. The company also anticipated only $288 million in revenue for the fourth quarter, which was significantly lower than analyst projections. Upset over these findings, Upstart revised its fiscal year 2025 revenue guidance down to approximately $1.035 billion.

During a related earnings call, Upstart officials attributed the subpar results to issues with Model 22, admitting that it had responded excessively to negative financial signals and thereby hindered borrower approvals. The executives recognized the necessity to recalibrate their AI model to adopt a more conservative credit assessment approach earlier in the quarter and acknowledged these methodological issues would continue to hamper future revenues.

As news of the disappointing performance spread, Upstart's stock plummeted by $4.49 per share, reflecting a 9.71% drop, to close at $41.75 on November 5, 2025.

Pomerantz LLP is renowned for its expertise in corporate, securities, and antitrust class litigation. The firm has built a strong reputation in protecting the rights of shareholders against securities fraud and corporate misconduct for over 85 years, successfully recovering billions in damages for class members. For more information, potential plaintiffs are encouraged to reach out to the firm's representative, Danielle Peyton, at 646-581-9980 or via email to explore their involvement in this class action.