Case: 2:22-cv-03620-ALM-EPD Doc #: 13 Filed: 04/24/24 Page: 1 of 60 PAGEID #: 137
`
`
`
`IN THE UNITED STATES DISTRICT COURT
`FOR THE SOUTHERN DISTRICT OF OHIO
`EASTERN DIVISION
`
`
`
`
`In re UPSTART HOLDINGS, INC.
`DERIVATIVE LITIGATION
`
`
`
` Case No. 2:22-cv-02961-ALM-EPD
`
` DEMAND FOR JURY TRIAL
`
`
`
`
`CONSOLIDATED AMENDED SHAREHOLDER DERIVATIVE COMPLAINT
`
`Plaintiffs William OConnor and Kimberly Chung (collectively, the “Plaintiffs”), by and
`
`through their undersigned attorneys, bring this consolidated amended derivative complaint for
`
`the benefit of nominal defendant Upstart Holdings, Inc. (“Upstart” or the “Company”), against
`
`its Board of Directors (the “Board”) and certain of its executive officers seeking to remedy the
`
`Individual Defendants’1 breaches of fiduciary duties and violations of federal law. Plaintiffs
`
`allege the following based upon personal knowledge as to themselves and their own acts, and
`
`information and belief as to all other matters, based upon, inter alia, the investigation conducted
`
`by and through Plaintiffs’ attorneys, which included, among other things, a review of: (a)
`
`documents produced by Upstart pursuant to the Order Granting the Parties’ Motion to
`
`Consolidate Cases, Appoint Co-Lead Counsel, and Stay the Consolidated Action entered in this
`
`case on December 12, 2022 (ECF No. 23) (the “Stipulation of Stay”); (b) public filings made
`
`by Upstart with the United States Securities and Exchange Commission (“SEC”); (c) publicly
`
`available documents concerning Upstart, transcripts of conference calls with analysts, and
`
`
`1 The Individual Defendants are Jeff Huber (“Huber”), Kerry Cooper (“Cooper”), Sukhinder Singh
`Cassidy (“Cassidy”), Hilliard Terry (“Terry”), Mary Hentges (“Hentges”), Ciaran O’Kelly
`(“O’Kelly”), Dave Girouard (“Girouard”), Paul Gu (“Gu”), Sanjay Datta (“Datta”), Robert
`Schwartz (“Schwartz”) and Anna Counselman (“Counselman”) (collectively with the Company,
`“Defendants”).
`
`

`

`Case: 2:22-cv-03620-ALM-EPD Doc #: 13 Filed: 04/24/24 Page: 2 of 60 PAGEID #: 138
`
`announcements concerning the Company; (d) press releases issued by, and regarding, Upstart;
`
`(e) legal filings, news reports, and securities analysts’ reports about the Company; (f) filings in
`
`various proceedings, including a federal securities class action captioned In re Upstart Holdings,
`
`Inc. Sec. Litig., No. 2:22-cv-02935-ALM-EPD (S.D. Ohio) (the “Securities Class Action”); and
`
`(g) other publicly available information concerning Upstart.
`
`NATURE OF THE ACTION
`
`1.
`
`This is a shareholder derivative action brought on behalf of Upstart against certain
`
`officers and members of the Company’s Board for breaches of their fiduciary duties to the
`
`Company and its shareholders from at least December 16, 2020 to November 8, 2022 (the
`
`“Relevant Period”), as set forth below.
`
`2.
`
`Upstart, founded in 2012, is a financial technology company that uses artificial
`
`intelligence (“AI”) to underwrite personal loans predominantly to borrowers whose limited or poor
`
`credit history generally precludes them from obtaining loans from more traditional sources.
`
`3.
`
`The Company’s platform aggregates consumer demand for high-quality loans and
`
`connects it to a network of Upstart’s AI-enabled bank partners. Upstart claims that its underwriting
`
`process enables banking partners to originate loans with higher approval rates and lower loss rates
`
`than traditional underwriting processes, while consumers purportedly benefit from higher approval
`
`rates and lower interest rates.
`
`4.
`
`The Company’s fee-based business model is predicated on moving large volumes
`
`of loans through its platform and then placing the loans the Company underwrites with banks or
`
`institutional credit investors, thereby keeping loans off its balance sheet and largely insulating
`
`itself from credit risk.
`
`5.
`
`As alleged herein, during the Relevant Period the Individual Defendants repeatedly
`
`
`
`2
`
`

`

`Case: 2:22-cv-03620-ALM-EPD Doc #: 13 Filed: 04/24/24 Page: 3 of 60 PAGEID #: 139
`
`stated that Upstart’s AI-based models could underwrite loans in a way that was superior to
`
`traditional underwriting processes and lead to the origination of less risky credit. Upstart touted
`
`the predictive capabilities of its AI technology, which would purportedly allow it to handle a
`
`recession “far better than a traditional system would.” The Company also represented that it would
`
`fund a limited amount of loans from its balance sheet only to support the research and development
`
`of new loan products, and that it would maintain limited exposure to credit risk.
`
`6.
`
`These and similar statements were materially false and misleading. In reality, the
`
`Company’s AI-based underwriting model was unable to adequately account for changing
`
`macroeconomic conditions, such as rising interest rates, inflation, and changes from government
`
`stimulus programs related to the Covid-19 pandemic. As a result, Upstart had been increasingly
`
`underwriting progressively less creditworthy loans, requiring the Company to fund a significant
`
`amount of loans from its balance sheet to support loan transaction volume and stabilize its business,
`
`thereby exposing Upstart to significant credit risk.
`
`7.
`
`On December 9, 2020, Upstart filed its registration statement and prospectus (the
`
`“Registration Statement”) with the SEC in connection with the Company’s initial public offering
`
`(“IPO”). On December 16, 2020, Upstart completed its IPO, taking advantage of the thriving
`
`lending market created by the U.S. government’s stimulus programs during the COVID-19
`
`pandemic. Upstart completed a successful IPO, offering approximately nine million shares to the
`
`public at $20.00 per share.
`
`8.
`
`The Individual Defendants’ misrepresentations of the Company’s business model,
`
`including the promises of loans with low credit risk and the unique position of the Company to
`
`withstand macroeconomic changes, were material to investors. As a result of the Individual
`
`Defendants’ misrepresentations during the Relevant Period, detailed herein, Upstart securities
`
`
`
`3
`
`

`

`Case: 2:22-cv-03620-ALM-EPD Doc #: 13 Filed: 04/24/24 Page: 4 of 60 PAGEID #: 140
`
`traded at artificially inflated prices. In the year following the IPO, Upstart’s stock price
`
`skyrocketed, reaching a high of $401.49 on October 15, 2021.
`
`9.
`
`However, the truth was revealed on May 9, 2022, when the Company announced
`
`its financial results for the first quarter of 2022. Upstart reported that it held approximately $604
`
`million worth of loans, notes, residuals on its balance sheet, an amount significantly higher than
`
`previous periods and more than double the $261 million that it held at the end of the previous
`
`quarter. The Company acknowledged that the significant increase in the amount of loans retained
`
`on its balance sheet was the result of rising “default rates” on loans originated in the second half
`
`of 2021 as well as “rising interest rates and rising consumer delinquencies putting downward
`
`pressure on conversion.” Further, Upstart revealed that, though the Company had historically used
`
`its balance sheet “almost exclusively” for the research and development of new loan products, in
`
`the first quarter of 2022, Upstart used its balance sheet as “a market-clearing mechanism” to
`
`support the Company’s loan transaction volume and stabilize its business.
`
`10.
`
`The Company also confirmed that it had recently “loosened” its loan modification
`
`policy to make it easier for Upstart borrowers to obtain forbearance of their loan payments. This
`
`had the effect of converting the status of “delinquent” loans to “current,” and likely masked the
`
`true extent of delinquent Upstart loans. In response, Upstart cut its 2022 revenue guidance by $150
`
`million and issued revenue guidance for the second quarter of 2022 that was well below analyst
`
`expectations. Despite Upstart’s prior statements touting its ability to handle a recession “far better
`
`than a traditional system would,” the Company attributed its weak outlook to “macro
`
`uncertainties” and “the prospect of a recession.”
`
`11.
`
`On this news, the Company’s share price fell $43.52, or over 56%, from a closing
`
`price of $77.13 per share on May 9, 2022, to a closing price of $33.61 per share on May 10, 2022.
`
`
`
`4
`
`

`

`Case: 2:22-cv-03620-ALM-EPD Doc #: 13 Filed: 04/24/24 Page: 5 of 60 PAGEID #: 141
`
`Additionally, the price of Upstart’s Convertible Senior Notes declined by $13.37, or approximately
`
`18.2%, based on a comparison of the last trade price on May 9, 2022 before the Company’s
`
`disclosures and the last trade price on May 10, 2022.
`
`12.
`
`Then, on July 7, 2022, the Company announced its preliminary unaudited financial
`
`results for the second quarter of 2022, revealing that its revenue was expected to be approximately
`
`$228 million, a significant decrease from the previously estimated $295 to $305 million. Defendant
`
`Girouard stated that:
`
`Our revenue was negatively impacted by two factors approximately equally. First,
`our marketplace is funding constrained, largely driven by concerns about the
`macroeconomy among lenders and capital market participants. Second, in Q2, we
`took action to convert loans on our balance sheet into cash, which, given the quickly
`increasing rate environment, negatively impacted our revenue.
`
`13.
`
`On this news, the Company’s stock price decreased $6.65 per share, or
`
`approximately 20%, to close at $27.09 per share on July 8, 2022.
`
`14.
`
`The truth was fully revealed on November 8, 2022, when the Company announced
`
`its financial results for the third quarter of 2022, revealing that total revenue was $157 million, a
`
`decrease of 31% from the third quarter of 2021. Defendant Datta stated that Upstart-originated
`
`loans were experiencing 25% more losses than modeled, essentially admitting that the Company’s
`
`AI model was not performing well in the same macroeconomic environment that the Company
`
`previously told investors that the model was designed to perform.
`
`15.
`
`On this news, the Company’s stock price dropped $1.98 per share, or approximately
`
`10%, to close at $17.06 per share on November 9, 2022.
`
`16.
`
`As a result of the foregoing, the Securities Class Action was filed against Upstart
`
`and Defendants Girouard, Datta, Gu, and Counselman.
`
`17.
`
`On September 29, 2023 this Court denied the defendants’ motion to dismiss in the
`
`
`
`5
`
`

`

`Case: 2:22-cv-03620-ALM-EPD Doc #: 13 Filed: 04/24/24 Page: 6 of 60 PAGEID #: 142
`
`Security Class Action in part (ECF No. 68) (the “Securities Class Action MTD Order”). Among
`
`other things, the Court found that “[t]he suspiciously timed insider sales, the disregard for the most
`
`current factual information, and the fact that the challenged statements go to the core of Upstart’s
`
`business model and were intended to reassure investors all point in favor of a strong inference of
`
`actual knowledge” and that “the following statements by the Upstart Defendants [were] actionable:
`
`(1) specific, material, and verifiable statements about the superiority of Upstart’s AI underwriting
`
`model over traditional, FICO-based models; (2) statements about the AI model’s ability to adapt
`
`to quickly changing macroeconomic conditions and its rate-insensitivity.” Securities Class Action
`
`MTD Order at 48.
`
`18.
`
`As a direct and proximate result of the Individual Defendants’ misconduct, the
`
`Company has incurred significant financial losses, including the costs of defending and paying
`
`class-wide damages in the Securities Class Action, as well as additional losses, including
`
`reputational harm and loss of goodwill.
`
`19.
`
`Plaintiff did not make a demand on the Board because, as further detailed herein,
`
`demand would be a futile and useless act. Demand is excused as to each of the Director Defendants
`
`(defined below) because each faces a substantial likelihood of liability for the misconduct alleged
`
`herein.
`
`JURISDICTION AND VENUE
`
`20.
`
`This Court has subject matter jurisdiction pursuant to 28 U.S.C. § 1331, section 27
`
`of the Securities Exchange Act of 1934 (the “Exchange Act”), 15 U.S.C. 78aa(a), over the claims
`
`asserted herein for violations of sections 10(b) of the Exchange Act and Rule 10b-5 (17 C.F.R. §
`
`240.10b-5) promulgated thereunder by the SEC, and pursuant to Section 14(a) of the Exchange
`
`Act (15 U.S.C. § 78n(a)(1)), Rule 14a-9 of the Exchange Act (17 C.F.R. § 240.14a-9), and Section
`
`
`
`6
`
`

`

`Case: 2:22-cv-03620-ALM-EPD Doc #: 13 Filed: 04/24/24 Page: 7 of 60 PAGEID #: 143
`
`21D of the Exchange Act (15 U.S.C. § 78u-4(f)).
`
`21.
`
`Plaintiffs’ claims also raise a federal question pertaining to the claims made in the
`
`Securities Class Action based on violations of the Exchange Act.
`
`22.
`
`This Court has supplemental jurisdiction over Plaintiffs’ state law claims pursuant
`
`to 28 U.S.C. § 1367(a).
`
`23.
`
`This action is not a collusive action designed to confer jurisdiction on a court of the
`
`United States that it would not otherwise have.
`
`24.
`
`In connection with the acts, conduct and other wrongs complained of herein,
`
`Defendants, directly or indirectly, used the means and instrumentalities of interstate commerce,
`
`the United States mail, and the facilities of a national securities market.
`
`25.
`
`Venue is proper in this District pursuant to 28 U.S.C. § 1391(b) because Nominal
`
`Defendant Upstart maintains its largest office, one of is two headquarters (“HQ2”), in this District
`
`and conducts business in this District.
`
`PARTIES
`
`Plaintiffs
`
`26.
`
`Plaintiff William OConnor is, and has been at all relevant times, a shareholder of
`
`Upstart.
`
`27.
`
`Plaintiff Kimberly Chung is, and has been at all relevant times, a shareholder of
`
`Upstart.
`
`Nominal Defendant
`
`28.
`
`Nominal Defendant Upstart is incorporated under the laws of Delaware with its
`
`principal executive offices located in Columbus, Ohio. Upstart’s common stock trades on the
`
`NASDAQ under the ticker symbol “UPST.”
`
`Individual Defendants
`
`
`
`7
`
`

`

`Case: 2:22-cv-03620-ALM-EPD Doc #: 13 Filed: 04/24/24 Page: 8 of 60 PAGEID #: 144
`
`29.
`
`Defendant Huber has served as a director of the Company since June 2021. Huber
`
`also serves as a member of the Board’s Nominating and Corporate Governance Committee.
`
`According to the Company’s public filings, Huber received $170,708 in 2021 in compensation
`
`from the Company.
`
`30.
`
`Defendant Cooper has served as a director of the Company since March 2021.
`
`Cooper also serves as Chairperson of the Board’s Compensation Committee. According to the
`
`Company’s public filings, Cooper received $221,817 in 2021 in compensation from the Company.
`
`31.
`
`Defendant Cassidy has served as a director of the Company since February 2020.
`
`Cassidy also serves as a member of the Board’s Compensation Committee. According to the
`
`Company’s public filings, Cassidy received $317,744 in 2021 in compensation from the Company.
`
`On November 19, 2021, Cassidy sold 5,000 shares of the Company’s stock for proceeds of over
`
`$1.05 million.
`
`32.
`
`Defendant Terry has served as a director of the Company since February 2019.
`
`Terry also serves as Chairperson of the Board’s Audit Committee. According to the Company’s
`
`public filings, Terry received $298,744 in 2021 in compensation from the Company. On November
`
`11, 2021, Terry sold 60,000 shares of the Company’s stock for proceeds of over $16.06 million.
`
`33.
`
`Defendant Hentges has served as a director of the Company since December 2019.
`
`Hentges also serves as a member of the Board’s Audit Committee. According to the Company’s
`
`public filings, Hentges received $288,744 in 2021 in compensation from the Company. On
`
`November 15, 2021, Hentges sold 30,000 shares of the Company’s stock for proceeds of over
`
`$7.37 million.
`
`34.
`
`Defendant O’Kelly has served as a director of the Company since April 2018.
`
`O’Kelly also serves as Chairperson of the Board’s Nominating and Corporate Governance
`
`
`
`8
`
`

`

`Case: 2:22-cv-03620-ALM-EPD Doc #: 13 Filed: 04/24/24 Page: 9 of 60 PAGEID #: 145
`
`Committee and a member of the Audit Committee. According to the Company’s public filings,
`
`O’Kelly received $296,744 in 2021 in compensation from the Company.
`
`35.
`
`Defendant Girouard is co-founder and Chief Executive Officer (“CEO”) of the
`
`Company and has served as a director since its inception in 2012. According to the Company’s
`
`public filings, Girouard received $14,955,933 in 2021 in compensation from the Company.
`
`Girouard is named as a defendant in the Securities Class Action. Girouard also serves as the trustee
`
`of the 2008 D&T Girouard Revocable Trust (the “Girouard Revocable Trust”). Between August
`
`2021 and March 2022, Girouard, directly and through the Girouard Revocable Trust, sold over
`
`1.15 million shares of the Company’s stock for proceeds of over $207.59 million.
`
`36.
`
`Defendant Gu is a co-founder of the Company, its Senior Vice President of Product
`
`and Data Science, and has served as a director since April 2015. According to the Company’s
`
`public filings, Gu received $7,925,248 in 2021 in compensation from the Company. Gu is named
`
`as a defendant in the Securities Class Action. Between August 2021 and March 2022, Gu sold
`
`506,000 shares of the Company’s stock for proceeds of over $143.63 million.
`
`37.
`
`Defendant Datta has served as the Company’s Chief Financial Officer (“CFO”)
`
`since December 2016. According to the Company’s public filings, Datta received $7,925,248 in
`
`2021 in compensation from the Company. Datta is named as a defendant in the Securities Class
`
`Action.
`
`38.
`
`Defendant Counselman is co-founder of the Company. Counselman has served in
`
`various roles at the Company since 2012 and currently serves as the Company’s Senior Vice of
`
`Business Operations. During the Relevant Period, Counselman served as Senior Vice President of
`
`People and Operations. According to the Company’s public filings, Counselman received
`
`$4,022,054 in 2021 in compensation from the Company. Counselman is named as a defendant in
`
`
`
`9
`
`

`

`Case: 2:22-cv-03620-ALM-EPD Doc #: 13 Filed: 04/24/24 Page: 10 of 60 PAGEID #: 146
`
`the Securities Class Action. On August 19, 2021, Counselman sold 608,355 shares of the
`
`Company’s stock for proceeds of over $122 million.
`
`39.
`
`Defendant Schwartz served as a Company director from June 2015 until his
`
`resignation on November 15, 2021. He declined to receive compensation, including equity awards,
`
`for his service as a director.
`
`40.
`
`Defendants Huber, Cooper, Cassidy, Terry, Hentges, O’Kelly, Girouard, and Gu
`
`are herein referred to as the “Director Defendants.”
`
`FIDUCIARY DUTIES OF THE INDIVIDUAL DEFENDANTS
`
`41.
`
`By reason of their positions as officers and/or directors of Upstart, and because of
`
`their ability to control the business and corporate affairs of Upstart, the Individual Defendants
`
`owed Upstart and its shareholders fiduciary obligations of trust, loyalty, good faith, and due care,
`
`and were and are required to use their utmost ability to control and manage Upstart in a fair, just,
`
`honest, and equitable manner. The Individual Defendants were and are required to act in
`
`furtherance of the best interests of Upstart and its shareholders so as to benefit all shareholders
`
`equally.
`
`42.
`
`Each director and officer of the Company owes to Upstart and its shareholders the
`
`fiduciary duty to exercise good faith and diligence in the administration of the Company and in
`
`the use and preservation of its property and assets and the highest obligation of fair dealing.
`
`43.
`
`The Individual Defendants, because of their positions of control and authority as
`
`directors and/or officers of Upstart, were able to and did, directly and/or indirectly, exercise control
`
`over the wrongful acts complained of herein.
`
`44.
`
`To discharge their duties, the officers and directors of Upstart were required to
`
`exercise reasonable and prudent supervision over the management, policies, controls, and
`
`operations of the Company.
`
`
`
`10
`
`

`

`Case: 2:22-cv-03620-ALM-EPD Doc #: 13 Filed: 04/24/24 Page: 11 of 60 PAGEID #: 147
`
`45.
`
`Each Individual Defendant, by virtue of his or her position as a director and/or
`
`officer owed to the Company and to its shareholders the highest fiduciary duties of loyalty, good
`
`faith, and the exercise of due care and diligence in the management and administration of the
`
`affairs of the Company, as well as in the use and preservation of its property and assets. The
`
`conduct of the Individual Defendants complained of herein involves a knowing and culpable
`
`violation of their obligations as directors and/or officers of Upstart, the absence of good faith on
`
`their part, or a reckless disregard for their duties to the Company and its shareholders that the
`
`Individual Defendants were aware or should have been aware posed a risk of serious injury to the
`
`Company.
`
`46.
`
`As senior executive officer and directors of a publicly-traded company whose
`
`common stock was registered with the SEC pursuant to the Exchange Act and traded on the
`
`NASDAQ, the Individual Defendants had a duty to prevent and not to effect the dissemination of
`
`inaccurate and untruthful information with respect to the Company’s financial condition,
`
`performance, growth, financial statements, products, management, internal controls, earnings, and
`
`present and future business prospects, including the dissemination of false and/or materially
`
`misleading information regarding the Company’s business, prospects, and operations, and had a
`
`duty to cause the Company to disclose in its regulatory filings with the SEC all those facts
`
`described in this Complaint that it failed to disclose, so that the market price of the Company’s
`
`common stock would be based upon truthful, accurate, and fairly presented information.
`
`47.
`
`To discharge their duties, the officers and directors of Upstart were required to
`
`exercise reasonable and prudent supervision over the management, policies, practices, and internal
`
`controls of the Company. By virtue of such duties, the officers and directors of Upstart were
`
`required to, among other things:
`
`
`
`11
`
`

`

`Case: 2:22-cv-03620-ALM-EPD Doc #: 13 Filed: 04/24/24 Page: 12 of 60 PAGEID #: 148
`
`(a)
`
`ensure that the Company was operated in a diligent, honest, and prudent
`
`manner in accordance with the laws and regulations of Delaware and the United States, and
`
`pursuant to Upstart’s own Code of Ethics (the “Code of Ethics”);
`
`(b)
`
`conduct the affairs of the Company in an efficient, business-like manner so
`
`as to make it possible to provide the highest quality performance of its business, to avoid wasting
`
`the Company’s assets, and to maximize the value of the Company’s stock;
`
`(c)
`
`remain informed as to how Upstart conducted its operations, and, upon
`
`receipt of notice or information of imprudent or unsound conditions or practices, to make
`
`reasonable inquiry in connection therewith, and to take steps to correct such conditions or
`
`practices;
`
`(d)
`
`establish and maintain systematic and accurate records and reports of the
`
`business and internal affairs of Upstart and procedures for the reporting of the business and internal
`
`affairs to the Board and to periodically investigate, or cause independent investigation to be made
`
`of, said reports and records;
`
`(e)
`
`maintain and implement an adequate and functioning system of internal
`
`legal, financial, and management controls, such that Upstart’s operations would comply with all
`
`applicable laws and Upstart’s financial statements and regulatory filings filed with the SEC and
`
`disseminated to the public and the Company’s shareholders would be accurate;
`
`(f)
`
`exercise reasonable control and supervision over the public statements
`
`made by the Company’s officers and employees and any other reports or information that the
`
`Company was required by law to disseminate;
`
`(g)
`
`refrain from unduly benefiting themselves and other Company insiders at
`
`the expense of the Company; and
`
`
`
`12
`
`

`

`Case: 2:22-cv-03620-ALM-EPD Doc #: 13 Filed: 04/24/24 Page: 13 of 60 PAGEID #: 149
`
`(h)
`
`examine and evaluate any reports of examinations, audits, or other financial
`
`information concerning the financial affairs of the Company and to make full and accurate
`
`disclosure of all material facts concerning, inter alia, each of the subjects and duties set forth
`
`above.
`
`48.
`
`Each of the Individual Defendants further owed to Upstart and the shareholders the
`
`duty of loyalty requiring that each favor Upstart’s interest and that of its shareholders over their
`
`own while conducting the affairs of the Company and refrain from using their position, influence,
`
`or knowledge of the affairs of the Company to gain personal advantage.
`
`49.
`
`At all times relevant hereto, the Individual Defendants were the agents of each other
`
`and of Upstart and were at all times acting within the course and scope of such agency.
`
`50.
`
`Because of their advisory, executive, managerial, and directorial positions with
`
`Upstart, each of the Individual Defendants had access to adverse, non-public information about
`
`the Company.
`
`51.
`
`The Individual Defendants, because of their positions of control and authority, were
`
`able to and did, directly or indirectly, exercise control over the wrongful acts complained of herein,
`
`as well as the contents of the various public statements issued by Upstart.
`
`UPSTART’S CODE OF BUSINESS CONDUCT AND ETHICS
`
`52.
`
`Upstart’s Code of Ethics applies to all directors, officers and employees (referred
`
`to jointly as “employees”) and is intended to reflect the Company’s business practices and
`
`principles of behavior in support of its commitment to “maintaining the highest standards of ethical
`
`conduct.”
`
`53.
`
`The Company expects every employee, contractor, and consultant to read and
`
`understand the Code of Ethics and its application to the performance of his or her business
`
`responsibilities. Employees who violate the Code of Ethics are subject to disciplinary action, up
`13
`
`
`
`

`

`Case: 2:22-cv-03620-ALM-EPD Doc #: 13 Filed: 04/24/24 Page: 14 of 60 PAGEID #: 150
`
`to and including termination.
`
`54.
`
`In a section titled “Compliance With Laws, Rules and Regulations,” the Code of
`
`Ethics states, in relevant part:
`
`All employees must respect and obey all laws when carrying out responsibilities on
`behalf of the Company and refrain from illegal conduct. Employees have an
`obligation to be knowledgeable about specific laws, rules and regulations that apply
`to their areas of responsibility. If a law conflicts with a policy in this Code,
`employees must comply with the law. Any questions as to the applicability of any
`law should be directed to the Responsible Officer.
`The following is a brief summary of certain topics about which employees should
`be aware:
`
`*
`
`*
`
`*
`E. Insider Trading. Under federal and state securities laws, it is illegal to trade in
`the securities of a company while in possession of material non-public information
`about that company. Because employees will have knowledge of specific
`confidential information that is not disclosed outside the Company which will
`constitute material nonpublic information, trading in the Company’s securities or
`in the securities of those companies with which the Company does business by
`employees or persons employees provide material nonpublic information to could
`constitute insider trading, violating the law. It is an employee’s responsibility to
`comply with these laws and not to share material nonpublic information. Please see
`the Company’s Insider Trading Policy for more information about our policies and
`procedures relating to insider trading.
`
`55.
`
`In a section titled “Keeping the Audit Committee Informed,” the Code of Ethics
`
`states:
`
`The Audit Committee plays an important role in ensuring the integrity of the
`Company’s public reports. If an employee believes that questionable accounting or
`auditing conduct or practices have occurred or are occurring, they should notify the
`Audit Committee of the Board. In particular, any employee should promptly bring
`to the attention of the Audit Committee any information of which they may become
`aware concerning:
`a. the accuracy of material disclosures made by the Company in its public
`filings;
`b. material weaknesses or significant deficiencies in internal control over
`financial reporting;
`c. any evidence of fraud that involves an employee who has a significant role
`in the Company’s financial reporting, disclosures or internal controls or
`procedures; or
`
`
`
`14
`
`

`

`Case: 2:22-cv-03620-ALM-EPD Doc #: 13 Filed: 04/24/24 Page: 15 of 60 PAGEID #: 151
`
`d. any evidence of a material violation of the policies in this Code regarding
`financial reporting.
`
`56.
`
`In a section titled “Reporting and Other Records,” the Code of ethics states, in
`
`relevant part:
`
`As a financial services company, it is of critical importance that the Company’s
`reporting to the various regulators with oversight over our business, and to our
`partners, be full, fair, accurate, timely and understandable. Depending on their
`respective positions with the Company, employees may be called upon to provide
`information necessary to assure that the Company’s reporting meet these
`requirements. The Company expects employees to take this responsibility very
`seriously and to provide prompt and accurate answers to inquiries related to the
`Company’s reporting requirements.
`Employees are responsible for the accurate and complete reporting of financial
`information within their respective areas and for the timely notification to senior
`management of financial and non-financial information that may be material to the
`Company to ensure full, fair, accurate, timely and understandable disclosure in
`reports and documents that the Company files with government agencies or releases
`to the general public.
`Each employee involved in the Company’s disclosure process must familiarize
`themselves with the disclosure requirements applicable to the Company and the
`business and financial operations of the Company, and must not knowingly
`misrepresent, or cause others to misrepresent, facts about the Company to others,
`whether within or outside the Company, including to the Company’s independent
`auditors, governmental regulators and self-regulatory organizations.
`
`UPSTART’S AUDIT COMMITTEE CHARTER
`
`57.
`
`Upstart’s Audit Committee Charter, amended on November 11, 2021, states that
`
`the purpose of the Audit Committee is to assist the Board in its oversight of:
`
`1. the accounting and financial reporting processes and internal controls of the
`Company;
`2. the audit and integrity of the Company’s financial statements;
`3. the Company’s compliance with applicable law (including U.S. federal
`securities laws and other legal and regulatory requirements);
`4. the qualifications, independence and performance of the Company’s
`independent auditors; and
`5. the design, implementation and performance of the Company’s internal
`audit function, as applicable.
`
`
`
`15
`
`

`

`Case: 2:22-cv-03620-ALM-EPD Doc #: 13 Filed: 04/24/24 Page: 16 of 60 PAGEID #: 152
`
`Following the Company’s initial public offering, the Committee shall also be
`responsible for preparing the report required by the Securities and Exchange
`Commission (the “SEC”) rules to be included in the Company’s proxy statement
`for the annual meeting of stockholders, and for performing other duties and
`responsibilities as are enumerated in or consistent with this charter.
`
`58.
`
`In a section detailing the Audit Committee’s responsibilities with respect to
`
`“Review of Internal Controls and Integrity of Financial Statements,” the Audit Committee Charter
`
`states, in relevant part:
`
`The Committee shall meet with management, the internal audit department, if
`applicable, and the Company’s independent auditor to review and discuss the
`Company’s internal controls and the integrity of the Company’s audited financial
`statements. Included in this process shall be review of:
`a. the scope and timing of the annual audit of the Company’s financial
`statements;
`b. the Company’s annual audited and quarterly unaudited financial statements
`and following the Company’s initial public offering, annual and quarterly
`reports on Form 10-K and Form 10-Q, including the disclosures in
`“Management’s Discussion and Analysis of Financial Condition and
`Results of Operations”; if applicable, the Committee shall make a
`recommendation to the Board as to whether the audited financial statements
`and “Management’s Discus