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Peloton Leaders Face Insider Trading Claims Over Treadmills (1)

Nov. 28, 2022, 6:08 PMUpdated: Nov. 28, 2022, 7:04 PM

An investor sued Peloton Interactive Inc.'s current and former senior leaders, claiming some of them sold nearly $500 million in company stock while hiding treadmill safety problems that killed one child and injured dozens.

The shareholder derivative lawsuit accuses ex-CEO John Foley of selling 600,000 shares worth $77 million shortly before news broke about critical safety flaws affecting its flagship products, around the same time eight other members of Peloton’s board and management sold stock worth $417 million.

The first bloc of insider sales, worth more than $100 million, allegedly came about a week before a 3-year-old boy suffered a significant brain injury when he was trapped under a Tread+ model Peloton treadmill.

“As Peloton’s former CEO and chairman, Foley would have direct and unfettered access to incident reports,” and the other executives “were undoubtedly aware in real time of the injuries described herein,” according to the complaint made public Monday in Delaware’s Chancery Court.

But in their “haste to dump stock” worth roughly $495 million before it plunged in value, they “utterly abdicated their fiduciary duties to Peloton and its stockholders,” the suit says. The company’s share price has fallen from a high of nearly $163 in December 2020 to around $10.

Peloton representatives didn’t immediately respond to a request for comment Monday.

According to the complaint, Foley and other company leaders dragged their feet on disclosing the treadmill problems—and continued to market the machine as safe—while resisting requests by the Consumer Product Safety Commission.

The suit, originally filed under seal Nov. 18, echoes probes by the Justice Department and securities regulators, proposed securities class actions, and personal injury litigation facing the company in federal court. An earlier investor lawsuit seeks internal files to investigate similar concerns.

Causes of Action: Breaches of fiduciary duty through insider sales and oversight failures.

Relief: Damages, costs, fees, and interest.

Attorneys: The investor leading the case, Krikor Arslanian, is represented by Rigrodsky Law PA, Squitieri & Fearon LLP, and Moore Kuehn PLLC.

The case is Arslanian v. Blachford, Del. Ch., No. 2022-1051, complaint unsealed 11/28/22.

(Updates with case information and additional reporting starting at paragraph seven.)

To contact the reporter on this story: Mike Leonard in Washington at mleonard@bloomberglaw.com

To contact the editors responsible for this story: Rob Tricchinelli at rtricchinelli@bloomberglaw.com; Patrick L. Gregory at pgregory@bloomberglaw.com