Peloton Still Haunted by Tread+, Execs Accused of Insider Trading in Lawsuit
Current and former Peloton executives are alleged to have sold nearly $500 million in stock while Tread+ wreaked havoc on consumers
A lawsuit accusing Peloton executives of insider trading has been filed, stemming from the sale of stock in 2021 as the Tread+ was recalled, Bloomberg Law reports. According to investor Krikor Arslanian, both current and former Peloton executives sold nearly $500 million in stock while concealing serious Tread+ safety issues.
The shareholder derivative action alleges that current and former members of the Board of Directors and Peloton executives breached their fiduciary duties, causing material harm to the connected fitness company and its stockholders.
While Peloton’s stock rose to an all-time high in December 2020 due to the at-home fitness boom caused by COVID-19, significant safety issues emerged. The connected fitness company was confronted with over 70 incident reports of adult users, children, pets, and objects being pulled under the rear of Peloton’s Tread. The reports included 29 injuries to children, including second and third-degree abrasions, broken bones, lacerations, and a fatality.
The suit alleges that Tread’s ongoing safety issues were well known to Peloton executives, who sold off the stock despite assurances that its equipment was safe.
The suit names 12 individuals, including Erik Blachford, Karen Boone, Jon Callaghan, Jay Hoag, William Lynch, Pamela Thomas-Graham, Howard Draft, John Foley, Tom Cortese, Jill Woodworth, Hisao Kushi, and Mariana Garavaglia.
“As a result of these incident reports and insider stock selling of $379,691,461.66 by nine of the Individual Defendants while in possession of material non-public information and [redacted] Peloton stock has since imploded, losing almost 95% of its value and trading at $8.98 as of September 8, 2022,” the suit reads.
Peloton also touted the safety of its connected fitness equipment in its marketing materials, with depictions that the Tread+ was safe to use around children, despite the knowledge of its dangers. The filing goes on to suggest that at the same time, Peloton Bike was also experiencing safety issues that resulted in a recall.
Peloton refused to rectify or address the complaints and incident reports, with former CEO Foley insisting that Peloton had no intention to cease selling or recall Tread+. It wasn’t until May 5, 2021, when Foley acknowledged Peloton had acted in error by continuing to sell the Tread+ and decided to conduct a voluntary recall.
The lawsuit accuses the former CEO of selling 600,000 shares of his personally held Peloton stock for proceeds of roughly $77 million. Foley, who was replaced by Barry McCarthy earlier this year, has since pivoted to the rug industry after officially cutting ties with the connected fitness brand in September.
“While the Company’s outside stockholders were decimated, certain insiders did quite well for themselves,” the lawsuit reads, alleging that the insider selling defendants sold approximately $495 million worth of their stock collectively, when Peloton’s stock price was at a record high. Some sales occurred shortly after a “catastrophic child injury connected to the Tread+ and about a month before Peloton publicly disclosed the child’s injury from the Tread+,” according to the filing.
