Peloton Interactive will have to face a lawsuit following a federal appeals court ruling, which claims that it misled shareholders regarding excess inventory when pandemic restrictions eased.
The United States Court of Appeals for the Second Circuit, located in Manhattan, according to a Reuters report, reversed a lower court’s decision on Wednesday, August 27, allowing shareholders to proceed with claims that Peloton made three false and misleading statements that artificially inflated its stock price.
Among the contested statements was former CEO John Foley’s claim during an August 26, 2021, earnings call that a $400 price reduction on bikes represented an “absolutely offensive” sales strategy rather than a defensive move to address weakening demand.
The lawsuit also cites two warnings in Peloton’s regulatory filings about hypothetical risks of “excess inventory levels” that shareholders argue had already become reality.
Circuit Judge Steven Menashi, writing for the 2-to-1 majority, noted that shareholders presented evidence suggesting the price cut was a defensive measure to clear three months of accumulated inventory.
“In sum, we conclude that the plaintiffs have plausibly alleged actionable misstatements or omissions,” Menashi wrote in his ruling.
The shareholder lawsuit follows a period during which Peloton’s stock price collapsed by over 80 percent, from February 5, 2021, to January 19, 2022, coinciding with the widespread availability of COVID-19 vaccines and the reopening of gyms nationwide.
Image courtesy Peloton
