Second Circuit Reverses Lower Court, Says Securities Class Action Against Peloton Can Proceed

Peloton must face shareholder lawsuit over post-pandemic outlook

Peloton Interactive must face a lawsuit claiming it defrauded shareholders by masking excess inventory of its home exercise equipment as the worst of the COVID-19 pandemic passed, a divided federal appeals court ruled on Wednesday.

Reversing a lower court ruling, the 2nd U.S. Circuit Court of Appeals in Manhattan said shareholders can try to prove that the maker of stationary bikes and treadmills made three false and misleading statements that inflated its stock price.

The statements included former Chief Executive John Foley’s claim in an August 26, 2021 earnings call that a $400 bike price cut was an “absolutely offensive” strategy to boost sales, rather than a defensive strategy to counteract weakness.

They also included two warnings in Peloton regulatory filings of hypothetical risks regarding “excess inventory levels.”

Circuit Judge Steven Menashi said shareholders offered evidence that the price cut was actually a defensive move to clear out three months of inventory, and that the risks of excess inventory had already materialized.

The Taylor Swift Wedding Trade

That spike yesterday afternoon — from about 43% to about 100% — came from Swift’s and Kelce’s official engagement announcement; the market has now resolved to “Yes.” The spike Monday afternoon — from about 25% to about 40% — did not come from the official announcement. Someone bought a lot of Yes contracts on Monday; Polymarket has an activity log, so you can see that user “romanticpaul” was a heavy buyer, starting at around 25 cents on Sunday; as of yesterday he was the top Yes holder, with 5,062 contracts. Each Yes contract pays out $1, so he made, you know, $3,500 or something on the trade.

Romanticpaul had good timing. Did he have inside information, or did he just get lucky? I have no idea. Also he didn’t get that lucky; I suspect that $3,500 won’t buy the cheapest item on Swift’s and Kelce’s wedding registry. Still, it raised eyebrows. The internet tells me they actually got engaged two weeks ago. Surely somebody knew before yesterday. In the past, if you knew about Taylor Swift’s engagement before anyone else, you could have felt cool about it, or perhaps you could have sold the story to a tabloid. Now you can use prediction markets to turn it directly into, well, some money. You can be rewarded for making the market on Taylor Swift’s engagement more efficient.

Gaps In SEC FCPA Enforcement

The SEC of course has FCPA enforcement powers as well (as to issuers and associated persons). but there has not been any FCPA enforcement actions by the SEC since late December 2024 – a gap of approximately 8 months.

However, similar gaps in SEC FCPA enforcement have previously occurred.

–In 2024, there was an approximate 8 month gap in enforcement actions.

–In 2021, there was an approximate 6 month gap in enforcement actions.

–In 2017, there was an approximate 6 month gap in enforcement actions.

–In 2013, there was an approximate 5 month gap in enforcement actions.

September of course is just around the corner and the month has traditionally been an active month for SEC FCPA enforcement as the SEC’s fiscal year ends.

SEC Staff Cuts Threaten Company Filing Reviews, Watchdog Says

The SEC staff exodus under President Donald Trump risks hindering efforts to ensure truthful corporate disclosures, unless the regulator works to mitigate brain drain, the agency inspector general’s office has said.

The Securities and Exchange Commission has lost 27 of its 299 disclosure review employees since February, according to an Aug. 26 Office of Inspector General report released Wednesday. The agency should prepare for more departures and the loss of institutional knowledge, the IG’s office said. The filing reviewers currently are working with “inconsistent documentation and a lack of comprehensive guidance,” it said.