Court Sustains Securities Claims Against Venture Investor, Citing Representative Director Conflicts
On September 30, 2026, the United States District Court for the Southern District of Ohio held that plaintiffs bringing securities claims arising out of the Upstart Holdings, Inc. IPO may also pursue claims against Third Point LLC, a venture investor in Upstart, and a Third Point partner who served on Upstart’s board of directors.
Third Point began investing in Upstart before the company went public, leading its Series C financing and obtaining a seat on the Upstart board. Schwartz filled that seat and, according to the complaint, shared confidential information about Upstart with Third Point, allegedly in violation of his fiduciary duties as an Upstart director. After Upstart went public, the information Schwartz shared allegedly allowed Third Point to sell Upstart stock ahead of Upstart disclosing adverse financial results. Plaintiffs asserted insider trading claims against Third Point and Schwartz and also argued Third Point should be liable for alleged misstatements Schwartz made in his role as a director because he was acting on behalf of Third Point.
Judge Marbley allowed the claims to proceed. He found the complaint "rife with allegations that Schwartz violated his fiduciary duties to Upstart and acted as an agent for Third Point." He also found that Third Point could plausibly be liable for Schwartz’s statements because Schwartz was alleged to be acting "in service to and for the promotion of Third Point during his tenure on the Upstart Board." Judge Marbley found scienter sufficiently pled in light of the alleged pattern of sharing non-public information to serve Third Point’s investment interests in violation of fiduciary duties to Upstart. Third Point argued there was no breach because Upstart knew about and approved the information sharing and trading, but the judge found these facts disputed and not amenable to resolution on a motion to dismiss.
The Upstart decision serves as a cautionary reminder to venture investors and their representatives on corporate boards. Board service creates fiduciary obligations to the company that may be in tension with the interests of the venture fund for which the board member works. This tension can be mitigated through designated director agreements, including, in venture capital investments, changes to standard side letters or Investor’s rights agreements, which can address permitted information sharing, procedures for handling conflicts of interest, scope of fiduciary duties, and other measures of liability protection. But those agreements will never fully remove the reality that designated directors occupy dual-hat roles and must be careful to ensure they observe the duties both hats require during their service.
