Shareholders to Launch Legal Action Against Peloton Over Post-Pandemic Business Prospects
In a significant turn of events, the U.S. District Judge Andrew Carter in Manhattan has upheld the dismissal of claims based on six other Peloton statements, yet ruled that the company must face a lawsuit. The case, City of Hialeah Employees' Retirement System et al v Peloton Interactive Inc et al, 2nd U.S. Circuit Court of Appeals, No. 24-2803, has been returned to Judge Carter's court.
The lawsuit, which alleges that Peloton defrauded shareholders, stems from the alleged fraud involving the masking of excess inventory of home exercise equipment. The shareholders sued after Peloton's stock price fell more than 80% from February 2021 to January 2022.
One of the misleading statements was made by former CEO John Foley during an August 2021 earnings call. The court ruled that shareholders can try to prove three false and misleading statements inflated Peloton's stock price.
The 2nd U.S. Circuit Court of Appeals in Manhattan ruled in favor of the shareholders, stating that they have the right to proceed with their case. However, Circuit Judge Jon Newman dissented, arguing that Foley's and Peloton's statements were not false and misleading in light of other information available to investors. Judge Newman expressed a "high degree of confidence" that the lawsuit will be dismissed because shareholders won't prove Peloton intended to defraud them.
Peloton's stock price has fallen approximately 95% since early 2021. Despite the ongoing legal battle, the company recently posted a surprise fourth-quarter profit and forecast fiscal 2026 revenue above analyst forecasts. In an effort to cut costs, Peloton also announced it would shed 6% of its workforce.
Lawyers for the shareholders and Peloton did not immediately respond to requests for comment. As of August 7, there is no publicly available information or reported court ruling that names a specific stock issuer responsible for fraud involving hiding excess inventory of home fitness equipment during the COVID-19 pandemic.
The court also noted two warnings in Peloton regulatory filings about hypothetical risks regarding "excess inventory levels." This suggests that the company was aware of the potential issue and chose not to disclose it fully to investors.
The case is expected to continue, with Judge Carter presiding over the proceedings. The outcome could have significant implications for Peloton and its investors, as well as other companies in the fitness industry.
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