Lawsuit Filed Against Peloton Regarding Post-Pandemic Company Prospects by Shareholders
Peloton Interactive Faces Lawsuit as Court Rules Shareholders Can Pursue Fraud Allegations Against Interactive Brokers' Client
In a significant turn of events, the 2nd U.S. Circuit Court of Appeals in Manhattan has ruled that shareholders can attempt to prove that Interactive Brokers' client, Peloton Interactive Inc., masked excess inventory of home exercise equipment, thus potentially defrauding them. This decision reverses a lower court ruling and upholds the August 2024 dismissal by U.S. District Judge Andrew Carter of claims based on six other Peloton statements.
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, identifies three false and misleading statements made by Peloton that allegedly inflated its stock price. These statements include remarks made by former CEO John Foley during an earnings call in August 2021, as well as two warnings in Peloton's regulatory filings about hypothetical risks regarding 'excess inventory levels.'
However, Judge Newman expressed a 'high degree of confidence' that the lawsuit will be dismissed because shareholders may not be able to prove Peloton intended to defraud them. Circuit Judge Jon Newman dissented from the decision.
The lawsuit, filed against Peloton Interactive Inc., names the City of Hialeah Employees' Retirement System and Robeco Capital Growth Funds SICAV as plaintiffs. The decline in Peloton's stock price occurred between February 2021 and January 2022, a period when vaccines became widely available and gyms began reopening.
In August 2021, Foley claimed that a $400 bike price cut was not a strategy to boost sales, but was 'absolutely offensive.' This statement is among those the court has identified as potentially misleading. On August 7, Peloton posted a surprise fourth-quarter profit and forecast fiscal 2026 revenue above analyst forecasts.
Despite the court ruling, Peloton Interactive must face the lawsuit. The company announced it would shed 6% of its workforce to cut costs on August 7. As of now, neither Peloton nor the lawyers for the shareholders have responded to requests for comment.
The case is expected to shed light on the practices of tech companies in managing their inventory and the implications of such practices on shareholder value.
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