Law360 (December 15, 2022, 4:41 PM EST) — Rigrodsky Law, Squitieri & Fearon, and Moore Kuehn will serve as co-lead counsel for investors in a consolidated Delaware Chancery Court suit accusing Peloton’s top executives of making off with nearly half a billion dollars through trading on insider information about the impending recall of a treadmill linked to at least one child’s death.
Chancellor Kathaleen St. J. McCormick approved an order Wednesday appointing the three firms as co-lead counsel and consolidating two derivative suits that were filed by Peloton Interactive Inc. stockholders Krikor Arslanian and Michael A. Smith.
The three firms will represent investors in the prosecution of the consolidated suit, and among other duties, will “delegate and monitor the work performed by plaintiffs’ attorneys to ensure that there is no duplication of effort or unnecessary expense,” the order said.
Arslanian filed a Chancery Court complaint last month seeking to force some of Peloton’s top officials to return to the company the profits they made from stock sold prior to the May 2021 recall.
The U.S. Consumer Product Safety Commission, which alerted consumers to the recall of 125,000 Peloton treadmills, said the company received over 70 reports that children, pets and adults were being pulled under the treadmill. One such incident led to the death of a 6-year-old child, the CPSC said.
According to Arslanian, investors were informed by then-CEO John Foley of the child’s death two months before the recall, but the company did not mention how many other reports of injuries it received — including a February 2021 incident that led to brain damage in a 3-year-old boy. The complaint also alleges that Peloton initially fought the recall.
Top officials at the company, including Foley, collectively shed hundreds of millions of dollars of stock in the weeks following that reported injury to the 3-year-old, which they were aware of but the public was not, according to the lawsuit.
Those sales happened to come at a time when the stock, bolstered by early pandemic sales of Peloton’s at-home exercise bike, was trading near an all-time high of around $150 per share.
On the day of the recall, the company’s stock price tumbled from $97.75 per share at the start of the trading day to $82.62 per share by the day’s end, market records show.
“The company is now the subject of multiple federal securities class action lawsuits, as well as personal injury litigation by the parents of several children who suffered devastating injuries,” according to the complaint, which also alleges that several federal agencies are investigating Peloton over the recalled treadmills and the alleged insider trading.
Other than Foley, who stepped down as CEO in September, the complaint also names as defendants former Chief Legal Officer Hisao Kushi, former Chief Financial Officer Jill Woodworth, current Chief Product Officer and co-founder Tom Cortese, and several other former and current officers and board members.
Smith filed suit this month, asserting similar claims. The litigation parties stipulated to having the suits “consolidated for all purposes, including pretrial proceedings, trial, and appeal.” Arslanian’s suit was deemed the operative complaint.
The parties agreed to stay the consolidated Chancery case pending the resolution of any motions to dismiss in a proposed class action in New York federal court that lodged federal securities claims against the exercise machine company and certain officers and directors.
A decision on any dismissal motions in that case, which is “factually related,” could help “inform the manner in which” the consolidated Chancery case, along with a similar consolidated shareholder derivative federal suit in New York, proceed, the order said.
Counsel for the parties didn’t immediately respond to requests for comment.
The stockholders are represented by Seth D. Rigrodsky, Gina M. Serra and Herbert W. Mondros of Rigrodsky Law PA, Lee Squitieri of Squitieri & Fearon LLP, and Fletcher Moore and Justin Kuehn of Moore Kuehn PLLC.
Peloton and the current or former officers and directors are represented by Kevin R. Shannon, Christopher N. Kelly and Anna L. Fosberg of Potter Anderson & Corroon LLP.
The case is In re: Peloton Interactive Inc. Stockholder Derivative Litigation, case number 2022-1051, in the Court of Chancery of the State of Delaware.
–Additional reporting by Jessica Corso, Hailey Konnath, Renee Hickman and Elaine Briseño. Editing by Orlando Lorenzo.