A federal appeals court has ruled that Peloton Interactive must face a lawsuit claiming it misled shareholders by hiding extra inventory as the COVID-19 pandemic’s impact waned. The 2nd U.S. Circuit Court of Appeals in Manhattan reversed a lower court’s decision, allowing investors to pursue claims that Peloton made false statements that inflated its stock price.
The lawsuit focuses on three specific statements. One was from former CEO John Foley during an August 2021 earnings call, where he criticized a $400 price cut on Peloton bikes as a bold move to boost sales, not a defensive reaction. The other two were warnings in regulatory filings about possible risks linked to excess inventory. The court said shareholders presented enough evidence suggesting the price cut was actually an attempt to clear out three months’ worth of unsold inventory and that the inventory problems had already happened.
Shareholders filed the lawsuit after Peloton’s stock price dropped sharply—more than 80%—between February 2021 and January 2022. This period saw COVID vaccines become widely available and gyms reopening, which cut into demand for home exercise equipment. One big drop came on November 5, 2021, when the company cut its full-year earnings forecast by up to $1 billion and revealed that 91% of its inventory had not sold.
Since early 2021, Peloton’s stock price has fallen roughly 95%. While the court allowed claims over three statements to move forward, it upheld the dismissal of allegations tied to six other statements. The case now returns to a lower court for further action.
Not all judges agreed with the decision. Judge Jon Newman disagreed, saying Peloton’s statements weren’t misleading when considering other information available to investors. He also expressed confidence that the lawsuit would eventually be dismissed because investors might not prove that Peloton intended to deceive them.
Peloton hasn’t commented publicly on the ruling. Meanwhile, legal representatives for the shareholders have yet to respond.
Interestingly, Peloton recently surprised the market by posting a profit in its fourth quarter and predicting higher-than-expected revenue for 2026. The company also said it would cut 6% of its workforce to save money.
The legal battle is officially known as City of Hialeah Employees’ Retirement System et al v Peloton Interactive Inc et al, case number 24-2803 in the 2nd U.S. Circuit Court of Appeals. It will be watched closely as a key moment in how companies communicate transparently with investors during shifting market conditions.