October 3, 2023

On September 29, Chief Judge Algenon L. Marbley of the United States District Court, Southern District of Ohio, provided a major victory for Willkie clients Third Point LLC, Third Point Ventures LLC, and Daniel Loeb by granting their motion to dismiss a putative securities class action lawsuit seeking upwards of $2.2 billion in damages. 

The lawsuit relates to Upstart Holdings, Inc., an AI lending platform that matches banks and credit unions to consumers seeking loans. The lawsuit alleged that Upstart misled investors concerning the superiority and reliability of its AI model and demand for its loans as market conditions softened. The lawsuit alleged that Third Point, an early-stage investor in Upstart, was a controlling shareholder of Upstart and asserted primary and control person claims against the Third Point Defendants under the federal securities laws.

Chief Judge Marbley granted the Third Point Defendants’ motion to dismiss in its entirety. The decision touches on a vast array of hot topics in securities litigation, including the scope of the maker’s doctrine under Janus Cap. Grp., Inc. v. First Derivative Traders, 564 U.S. 135, 142 (2011), so-called “scheme liability” claims, the frequently litigated topic of when shareholders become controlling shareholders for purposes of the federal securities laws, and liability under Section 20A of the Securities Exchange Act for contemporaneous “insider trades.” The motion to dismiss filed by the issuer was granted and denied in part.

In ruling for Third Point across the board on these topics, Chief Judge Marbley handed Third Point and all investment funds a significant victory. Indeed, the decision provides clear guidance for investment funds and private equity investors—who are often named as “control party” defendants in securities class actions, particularly after a busted IPO or when the companies in which they invest face high-profile setbacks.

The Willkie team included partners Tariq Mundiya, Shaimaa Hussein, and Charles Cording, associates Samantha Prince and Khara John, and law clerk Bhushan Satish.