The opinion
UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
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JIA TIAN and DAVID FEIGELMAN,
individually and on behalf of all others
similarly situated, MEMORANDUM & ORDER
23-CV-4279 (MKB)
Plaintiffs,
v.
PELOTON INTERACTIVE, INC., JOHN FOLEY,
BARRY MCCARTHY, JILL WOODWORTH,
ELIZABETH F. CODDINGTON, THOMAS
CORTESE, and HISAO KUSHI,
Defendants.
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MARGO K. BRODIE, United States District Judge:
Plaintiff Sam Solomon commenced this securities class action on June 9, 2023, on behalf
of himself and other similarly situated investors who purchased or otherwise acquired Peloton
Interactive, Inc. (“Peloton”) securities between May 10, 2022 and May 10, 2023 against
Defendants Peloton, Barry McCarthy, Jill Woodworth, and Elizabeth F. Coddington. (Compl. ¶¶
1, 13–16, Docket Entry No. 1.) Solomon alleged that Defendants violated sections 10(b) and
20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”). (Id. ¶ 1.) On November 6,
2023, Jia Tian and David Feigelman, as lead Plaintiffs,1 filed an Amended Complaint and added
Defendants John Foley, Thomas Cortese, Hisao Kushi, and Tammy Albarrán (collectively with
McCarthy, Woodworth, and Coddington, the “Individual Defendants”) (the “Amended
1 On August 22, 2023, Tian and Feigelman filed a joint motion for appointment as lead
Plaintiffs. (See Consent Mot. to Appoint Co-Lead Pls. and Co-Lead Counsel, Docket Entry No.
16.) On September 7, 2023, Magistrate Judge James R. Cho granted the joint motion without
objection and directed Tian and Feigelman to file an amended complaint. (Order granting
Consent Mot. to Appoint Co-Lead Pls. and Co-Lead Counsel, Docket Entry No. 17.)
Complaint”). (Am. Compl. ¶¶ 19, 23–26, Docket Entry No. 23.) The Amended Complaint also
expanded the class period to through May 6, 2021 and August 22, 2023 (the “Class Period”).
(Id. ¶ 1.) On April 11, 2025, Plaintiffs filed a Second Amended Complaint and removed Tammy
Albarrán as a Defendant (the “SAC”). (SAC ¶¶ 20–27, Docket Entry No. 44.)
Defendants move to dismiss the SAC for failure to state a claim pursuant to Rule 12(b)(6)
of the Federal Rules of Civil Procedure, and Plaintiffs oppose the motion.2 For the reasons
explained below, the Court grants Defendants’ motion.
I. Background
Peloton is a Delaware corporation with principal executive offices in New York, New
York.3 (SAC ¶ 20.) The Individual Defendants were senior officers or board members of
Peloton during the Class Period. (Id. ¶ 340.) Defendant McCarthy has been the Chief Executive
Officer (“CEO”) and President of Peloton and a member of the Board of Directors (the “Board”)
since February 9, 2022. (Id. ¶ 22.) Defendant Woodworth was Peloton’s Chief Financial Officer
(“CFO”) from before the Class Period to June 13, 2022, and a consultant to Peloton from June
13, 2022 until September 13, 2023. (Id. ¶ 23.) Defendant Coddington has been Peloton’s CFO
since June 13, 2022. (Id. ¶ 24.) Defendant Foley is Peloton’s co-founder and was its CEO and
Chairman of the Board from before the start of the Class Period until February 9, 2022 and
Executive Chairman of the Board from February 9, 2022 to September 12, 2022. (Id. ¶ 21.)
Defendant Cortese was Peloton’s Chief Operating Officer from before the start of the Class
2 (Defs.’ Not. of. Mot. to Dismiss (“Defs.’ Mot.”), Docket Entry No. 50; Defs.’ Mem. in
Supp. of Defs.’ Mot. (“Defs.’ Mem.”), appended to Defs.’ Mot., Docket Entry No. 50-1; Pls.’
Opp’n to Defs.’ Mot. (“Pls.’ Opp’n”), Docket Entry No. 51; Defs.’ Reply in Supp. of Defs.’ Mot.
(“Defs.’ Reply”), Docket Entry No. 52.)
3 The Court assumes the truth of the factual allegations in the Second Amended
Complaint for the purpose of deciding Defendants’ motion.
Period until August of 2021 and Chief Product Officer from August of 2021 to November 1,
2023. (Id. ¶ 25.) Defendant Kushi was Peloton’s Secretary and Chief Legal Officer from before
the start of the Class Period until October 3, 2022. (Id. ¶ 26.)
a. Peloton’s business model
Peloton manufactures personal fitness equipment and sells subscriptions to live and on-
demand fitness classes. (Id. ¶¶ 2, 46.) Peloton’s “exercise machines are equipped with a large
touchscreen video display which provide[s] direct access to Peloton’s course catalog and, as
such, are referred to as its ‘Connected Fitness Products.’” (Id. ¶ 46.) During the Class Period,
Peloton’s Connected Fitness Products included the Bike, which is its flagship stationary spin
bike (the “Bike”); the Bike+, a premium version of the Bike; the Tread, a treadmill; and the
Tread+, a premium version of the Tread.4 (Id. ¶¶ 2, 46, 51.) Peloton’s primary revenue sources
are its Connected Fitness Products and the “month-to-month subscriptions” of Peloton’s “digital
library” of its fitness classes. (Id. ¶ 3.) At the start of the Class Period, the Bike accounted for a
“significant majority” of Peloton’s annual $4.02 billion in sales, and “almost 75% of Peloton’s
subscription revenues were associated with Connected Fitness Products.” (Id. ¶¶ 3, 52.)
Because “the only source of revenue from a customer after an initial product purchase was often
through his or her monthly subscription,” Peloton and investors were focused on the “rate of
subscription cancellations, referred to as ‘churn.’” (Id. ¶ 4.) “Prior to the Class Period, Peloton
boasted an unprecedented churn rate of less than 1%.” (Id.)
4 In September of 2020, Peloton rebranded the Tread as the Tread+. (SAC ¶ 51.) In
December 2020, Peloton released a “sleeker, more lightweight version branded as the new
Tread.” (Id.) For clarity, the Court will refer to the “Tread+” as the treadmill released in 2018
and rebranded in September 2020 and the “New Tread” as the treadmill released in December of
2020.
“As of June 30, 2019, Peloton had more than 500,000 active subscribers, and its annual
revenues reached almost $1 billion.” (Id. ¶ 49.) “On September 26, 2019, Peloton commenced
an [Initial Public Offering] in which it issued and sold over 40,000,000 shares of its Class A
common stock at $29.00 per share.” (Id.)
One of Peloton’s “fundamental values” is its “Members First” philosophy where Peloton
“obsess[es] over every touchpoint of [their] member experience.” (Id. ¶ 54.) Peloton regularly
receives direct feedback from members through several channels. (Id. ¶ 73.) “First, Peloton has
a dedicated Member Support Team that is responsible for working directly with Peloton
members to answer questions and to resolve their issues, including safety issues or product
defects.” (Id. ¶ 74 (emphasis omitted).) “Second, throughout the Class Period, Peloton also
maintained the Escalations team within its Members Services group, which was comprised of
Executive Escalations Specialists,” (id. ¶ 75 (emphasis omitted)), who “addressed customer
issues that were raised to executive officers,” (id. ¶ 36). For example, Executive Escalation
Specialists handled “complex and sensitive customer issues . . . involving legal, security, and
[Public Relations] implication” with “senior management.” (Id. ¶¶ 75, 253.) Escalations team
member Confidential Witness 9 (“CW9”) and manager of Member Support Confidential Witness
12 contend that Peloton used a program called Zendesk to collect ticket data and provide reports
on “how many instances of a certain topic came, how fast agents were resolving tickets, or how
many tickets were being escalated,” which would be shared from the Escalation teams executives
to the executive suite. (Id. ¶ 78.) Confidential Witness 8 (“CW8”), who worked in a director
level in customer service, contends that Defendant McCarthy “forwarded emails he received to
the Escalations team distribution list.” (Id. ¶ 79.)
“Third, Peloton receives notice of any safety-related complaints about its products that
are filed with the [U.S. Consumer Product Safety Commission (the ‘CPSC’)].” (Id. ¶ 80
(emphasis omitted).) “Fourth, Peloton engages with members through social media,” including
through “Community Associates” who are “tasked with monitoring all social media channels for
insights by current or prospective members, and addressing support-related posts, comments, and
messages.” (Id. ¶ 81 (emphasis omitted).) “Fifth, Peloton also receives a wealth of detailed
behavioral data from members through their use of Connected Fitness Products and Peloton
Digital.” (Id. ¶ 82 (emphasis omitted).) In a March of 2018 interview, Brad Olson, the then-
head of Peloton’s Member Experience division, said that Peloton “capture[s] every single piece
of Member feedback across all channels, and read[s] it back to the entire organization on a
regular basis to identify emerging trends and areas for improvement.” (Id. ¶ 83 (emphasis
omitted).) “In 2020, Olson confirmed that Peloton continued to ‘pull all that together and share
it broadly in the organization.’” (Id.) Confidential Witness 2 (“CW2”), who worked as a
“Member Support Supervisor department from July [of] 2021 to October [of] 2022” and as a
“Senior Partner Analyst from October [of] 2022 to September [of] 2023,” (id. ¶ 29), confirmed
that reports contained both negative and positive feedback. (Id. ¶ 83.) According to CW8, the
monthly report produced by marketing was “generally positive,” while the monthly report
produced by member support — particularly, the escalations team — were “generally negative”
because “you don’t call member support unless you have a problem.” (Id. ¶ 84.)
b. Peloton’s alleged quality control and manufacturing issues
Several confidential witnesses stated that because Peloton’s manufacturers “could not
consistently make the Bikes’ and treadmills’ parts to specifications,” there were “massive
assembly problems and other defects prior to and throughout the Class Period.” (Id. ¶ 86.) For
example, CW8 contends that there were design problems with Peloton products that made
“product quality issues even worse,” resulting in one out of every fifteen bike installations
having a problem within the first thirty days. (Id. ¶¶ 87–88.) According to CW8, Defendants
were aware of the assembly issues because the pervasiveness of the assembly issues resulted in
Defendant Cortese beginning an unsuccessful “initiative to get to zero problems within the first
[sixty] days for all of its products.” (Id. ¶ 89.) In addition, CW8 reported that growing Peloton’s
base was prioritized over issues related to the poor quality of Peloton’s products and its “weak
quality control.” (Id. ¶ 91.) Similarly, Confidential Witness 5 (“CW5”) stated that Peloton was
“already having ‘assembly issues’ with the Peloton Bike+” before its release in September of
2020 because pieces that were not made to specifications were nevertheless sold to customers.
(Id. ¶¶ 93–95.) Plaintiffs, CW5, and CW1 contend that manufacturing problems were pervasive
across Peloton manufacturers in Taiwan, Whitsett, and North Carolina. (Id. ¶¶ 98, 104, 108.)
Senior Director of Quality James Gunipero indicated that executives above him “knew about the
issue and did not want to do anything about it.” (Id. ¶ 96.) In addition, CW5 is “very confident”
that Defendant Cortese was aware of these issues, he would nevertheless say “Just ship it.” (Id. ¶
109.)
c. Consumer issues with Peloton’s Connected Fitness Products
Beginning in 2018, Peloton received consumer complaints reporting safety concerns
about the Tread+ and Bike.5
i. Complaints about the Tread+
Peloton began receiving consumer complaints about the Tread+ shortly after its launch in
late 2018. (Id. ¶ 56.) Customers reported that “a variety of household objects were getting
sucked under and entrapped by the rear of [Tread+’s] unprotected running belt while in use,
5 Despite the allegations regarding the Tread+, Plaintiffs’ claims in this action are about
the Bike.
often lifting the massive device off the ground.” (Id.) “On March 3, 2021, Peloton received
notice that a six year-old died after being swept under the [Tread+’s] slat belt.” (Id.) On March
4, 2021, Peloton reported the safety concern to the CPSC. (Id. ¶ 57.) After investigating, the
CPSC asked Peloton to recall the Tread+, but Peloton refused and instead issued a press release
stating that “[t]here is no reason to stop using the Tread+, as long as all warnings and safety
instructions are followed.” (Id. ¶¶ 58–59.) Approximately two months later, “on May 5, 2021,
CPSC and Peloton issued a joint press release announcing a voluntary recall of all Tread+
machines on the market.” (Id. ¶ 60.) “At the time of this recall, Peloton had already sold
approximately 125,000 Tread+ machines in the United States.” (Id.) “In total, the Tread+ recall
cost Peloton over $100 million in direct recall-related expenses.” (Id. ¶ 61.) During a May 6,
2021 conference call Peloton executives held to discuss the quarter ending on March 31, 2021,
Defendant Foley stated that “Peloton made a mistake in our initial response to the [CSPC]’s
request that we recall our Tread+ product.” (Id. ¶ 64 (alteration in original).) He also stated that
Peloton has “some work to do to get back on the right side of the line with trust and safety.”
(Id.) In Peloton’s annual Securities and Exchange Commission (“SEC”) filing for the period
ending June 30, 2021, Peloton identified the Tread+ recall as an “example” of their success
depending on their “ability to maintain the value and reputation of the Peloton brand” and noted
that their “products and services may be affected from time to time by design and manufacturing
defects, real or perceived.” (Id. ¶ 65.)
By “no later than May 7, 2021, the CPSC notified Peloton that it had opened an
investigation into the [c]ompany’s compliance with its reporting obligations under the
[Consumer Product Safety Act] in connection with the Tread+ safety issue it first reported to the
CPSC in March 2021.” (Id. ¶ 271.) The U.S. Department of Justice and U.S. Department of
Homeland Security also “opened investigations into Peloton’s reporting of injuries associated
with its products generally.” (Id.) In August of 2022, “the CPSC informed Peloton that its staff
believes that it knowingly failed to satisfy its reporting obligation under the CPSA” and “that by
the time Peloton made its first report to the CPSC about the Tread+ safety issue in March [of]
2021, it had already received more than 150 previous reports from as far back as December [of]
2018” about the Tread+’s slat belt. (Id. ¶ 272.) Defendants McCarthy and Coddington reported
the CPSC’s findings in the 2022 Form 10-K filed with the SEC on September 7, 2022, and
Defendant McCarthy entered a settlement agreement with the CPSC in December of 2022. (Id.
¶¶ 273, 275.) Peloton agreed to pay a civil penalty of more than $19 million and pledged to
maintain an “enhanced compliance program designed to ensure compliance with the CPSA with
respect to any consumer product . . . distributed or sold by Peloton.” (Id. ¶¶ 276–77 (emphasis
omitted).)
ii. Complaints about the Bike
Plaintiffs contend that Peloton “was receiving a cascade of complaints that the seat post
on the Bike was severely rusting, in addition to detaching while in use.” (SAC. ¶ 6.) “[T]he seat
of the Bike is mounted on top of a removable post that has a vertical and horizontal segment,
which are connected by a welded joint.” (Id. ¶ 69.) The design allows the user to move the seat
up and down and forward and backward, placing “inherent tension on the joint whenever weight
is applied on the horizontal shaft.” (Id.) The structural integrity of the joint between the vertical
and horizontal segments is “critical to the design of the Bike’s seat post.” (Id.) The complaints
included reports that a post for the Bike seat had “split along the seam of its joint,” (id. ¶ 114),
that the post for the Bike seat “broke off along the ‘weld’ of the post joint,” (id. ¶ 116), and that a
user’s “seat post snapp[ed] during a ride causing [the user] to fall backwards off the bike,” (id. ¶
118). Plaintiffs contend that “[t]hroughout the Class Period, Peloton received a steady stream of
reports about [the Bike] seat posts rusting, breaking, and detaching through its customer service
resources, social media pages that the [c]ompany admittedly (and verifiably) monitored, and
even directly from the CPSC.” (Id. ¶ 8; see also id. ¶¶ 111–129 (providing examples of
reports).) “[A]s of April 30, 2023, Peloton admitted it formally received at least [thirty-five]
reports of the seat post breaking ‘during use,’ according to an internal memorandum sent to
employees by Peloton’s Executive Product Safety Committee on or around May 4, 2023.” (Id. ¶
140.)
iii. Project Tinman
Plaintiffs allege that, under the code name “Project Tinman,” Defendants began covering
up visible rust build-up on the Bike seat frames at Peloton’s warehouses and selling the Bikes to
customers at full price. (Id. ¶ 9.) In support, Plaintiffs contend that Peloton senior executives
issued a series of protocols to direct “staff assembling or inspecting the Bikes in the United
States to apply a chemical solution called a ‘rust converter,’ which concealed the corrosion by
reacting with the rust to form a ‘black layer’ like the color of the frame.” (Id. ¶ 144.) Several
former Peloton employees supported Plaintiffs’ description of Project Tinman. (Id. ¶ 145.)
Confidential Witness 13 (“CW13”), a “supervisor in the [c]ompany’s Hardware and Software
Department,” (id. ¶ 40), recalled that rust-related complaints started approximately in October of
2020. (Id. ¶ 147.) Confidential Witness 1 (“CW1”), who was a “Product Manager for the
Supply Chain,” (id. ¶ 28), and Confidential Witness 3 (“CW3”), who was a “an Assembly
Technician . . . [and later] a Quality Control Inspector,” (id. ¶ 30), attributed the rust issue, at
least in part, to humid conditions during shipping the bike parts from Taiwan to the United
States. (Id. ¶ 156.) CW5, who worked on Peloton’s manufacturing team, (id. ¶ 32), further
attributed the rust issue to supply chain issues with Peloton’s manufacturer in Taiwan. (Id. ¶
146.) According to CW5, “It was a big deal, and everybody knew about it. These things were
rusty before they got moved into the next process.” (Id.) Confidential Witness 4, who was
assigned to Project Tinman in late 2021, stated that employees “had to take a heavy-duty
flashlight and shine it into the inside of the bike to check the severity of the rust,” and if there
was a lot of rust, the rust “would get scraped out and then sprayed down on the inside” to cover it
up. (Id. ¶ 155.) Similarly, Confidential Witness 14, Confidential Witness 15 (“CW15”), and
Confidential Witness 16 stated that they stopped building Bikes to, instead, scrape off rust. (Id. ¶
148.) “Prior to Tinman, a Bike frame with any rust was automatically disqualified from being
sold.” (Id. ¶ 145 (emphasis in original).)
On February 17, 2022, the Financial Times reported on Project Tinman with supporting
details from former Peloton employees and internal documentation. (Id. ¶¶ 11, 216.) On
February 22, 2022, the Financial Times published another article “featur[ing] rich detail on
Project Tinman sourced from eight current and former employees and internal materials they
provided which documented the program . . . and . . . a company-wide national effort to use a
chemical solution to change the color of the rust.” (Id. ¶ 217.) “On this news, Peloton’s stock
fell approximately 14% in the aggregate.” (Id. ¶ 11.) CW2 stated that after the Financial Times
article, Peloton changed its internal guidelines for handling customer complaints about rust. (Id.
¶ 264.) Previously, any reports about rust were referred to Peloton’s “Escalation Team,” but
Peloton changed its guidelines so that only reports of rust within “joints or connection points”
were sent to the Escalation Team. (Id.) CW13 also stated that Peloton was tracking the rust
complaints through an internal platform called “Confluence” containing documents, images, and
“information about tests that occurred in warehouses investigating the rust.” (Id. ¶¶ 153, 256.)
Although the documents were accessed by engineers and those working in quality assurance,
members of the executive suite and above had access to Confluence. (Id.)
According to Plaintiffs, Peloton’s executives orchestrated Project Tinman, demonstrating
“a conscious attempt to hide the rust and pass them off to customers at full price.” (Id. ¶ 259
(emphasis in original).) CW15, for example, received an email that “told us not to disclose any
type of information about Project Tinman” because it would “impact people buying the Bike.”
(Id. ¶ 149.) In addition, executives from Peloton’s headquarters would visit the warehouse to
inspect the Bikes to “see the magnitude of the rust issue and see how to come up with solutions
to try to hide the problem.” (Id. ¶ 159.)
d. Peloton’s alleged misrepresentations and omissions about the Bike and
Peloton’s business model
Plaintiffs allege that “Defendants concealed [the Bike seat] issues from customers and
regulators alike and continued to laud the quality of [Defendants’] products, including the Bike,
and [Defendants’] commitment to safety.” 6 (Id. ¶ 7.)
Plaintiffs allege that Defendants made misleading statements about the quality and safety
of the Peloton Bike throughout the Class Period. For example, Defendant Foley stated on a May
6, 2021 earnings call that Peloton is a “members-first organization” and “the safety of our
member community comes first.” (Id. ¶ 170.) He also publicly stated in interviews and on
earnings calls in 2021 that Peloton has “an incredible responsibility and obligation to the safety
of people who bring Peloton in their home,” (id. ¶ 174), that Peloton is “100% committed to the
6 Plaintiffs also state that Defendants similarly made false and misleading statements
following the Tread+ recall. Plaintiffs contend that “[d]espite the deluge of safety and quality
defects reported to or otherwise known by the [c]ompany during the Class Period, Defendants
made numerous false and misleading statements in the wake of the Tread recall.” (Id. ¶ 168.)
For example, Plaintiffs state that at an October 21, 2021 industry conference, Defendant Cortese
stated, in response to a question about the Tread+ recall, that Peloton “is energized that we can
now take . . . this charge and become” the “far, far ahead runner in everything safety-related . . .
for innovation in fitness.” (Id. ¶ 189.) As discussed above, Plaintiffs do not bring any claims
regarding the Tread or Tread+ in this action.
safety and well-being” of its members, (id.), and that “[e]verything we do at Peloton is designed
to keep our members engaged and our churn rate low,” (id. ¶ 178).
In Peloton’s May 7, 2021 Form 10-Q filing, Peloton stated:
Our products and services may be affected from time to time by
design and manufacturing defects, real or perceived, that could
adversely affect our business and result in harm to our reputation.
We offer complex hardware and software products and services that
can be affected by design and manufacturing defects. . . . Defects
may also exist in components and products that we source from third
parties. Any defects could make our products and services unsafe
and create a risk of environmental or property damage and/or
personal injury. . . . [T]he occurrence of real or perceived defects in
any of our products, now or in the future, could result in additional
negative publicity, regulatory investigations, or lawsuits filed
against us, particularly if Members or others who use or purchase
our Connected Fitness Products are injured.
(Id. ¶ 171 (emphasis omitted).) Peloton submitted additional Form 10-Ks and Form 10-Qs to
regulators in 2021 and 2022 containing similar language about the company’s risks and
uncertainties. (Id. ¶¶ 187, 194, 198, 202, 204, 210.) Peloton’s 2021 Form 10-K, signed by
Defendants Foley ad Woodworth, and Schedule 14A proxy statement, signed by Defendant
Kushi, also identified “Put[ing] Members First” as one of its core values, elaborating that Peloton
“obsess[es] over every touchpoint of our Member experience.” (Id. ¶¶ 185, 190.) Peloton’s
website also stated that “the Member experience [is] at the core of everything we do” and
“[f]rom product design to manufacturing and from delivery to the entire Member experience —
our team continuously evaluates the safety of our products.” (Id. ¶ 196.)
At a June 8, 2021 industry conference, Defendant Woodworth stated that Peloton is
“always continuously working harder to . . . make our products and make our software and
content better and better and better.” (Id. ¶ 176 (emphasis omitted).) In a 2022 letter to
stockholders, Defendant McCarthy stated that Peloton was “beating” its own timeline for
“sustained growth and scale” by growing its subscriber base and continuing to have low churn
rates. (Id. ¶ 208.) On a February 1, 2023 earnings call, Defendant Coddington stated that
Peloton did not “expect any significant changes to our current churn levels.” (Id. ¶ 212.)
In Peloton’s third quarter 2023 Form 10-Q, Peloton disclosed that it accrued “$8.4
million of estimated contingent loss expense related to a voluntary corrective action plan
involving certain seat posts” of the Bike. (Id. ¶ 214.) As a result, Peloton stated that it may:
incur incremental expenses or face other challenges in connection
with the implementation of the [corrective action plan] beyond what
we have currently estimated to be probable and reasonably
estimable, including if the number of reported incidents materially
increases, which may adversely impact our operating results, brand
reputation, demand for our products, and business, although we do
not currently anticipate that the total expenses related to
implementation of the [corrective action plan] will be material to our
financial position.
(Id. ¶ 214 (emphasis omitted).)
Plaintiffs allege that the above statements made by Defendants were “materially false and
misleading when made, or omitted to state material facts necessary to make the statements not
misleading” because Defendants actively concealed and failed to disclose that Peloton: (1) was
assembling Bikes using parts that were not made to specifications; (2) had a policy of “Just Ship
It,” which meant that Bikes were “shipped regardless of whether they were made with parts that
were not made to specifications”; (3) “in spite of its recent experience with the Tread+ recall”
and its report of the issues to the CPSC, “which was mandating that Peloton recall all Bikes,”7
Peloton continued to sell Bikes to customers for which the seat posts “were prone to rust, break,
or [would] otherwise detach during use, rendering them defective or unsafe for users”; (4)
7 Plaintiffs allege that “[b]y early 2023, the CPSC had informed Defendants that they
would need to recall Bike seat posts.” (SAC ¶ 12.) However, Plaintiffs do not provide any
additional facts establishing when in early 2023 the CPSC issued this mandate.
“would need to recall millions of Bikes pending a comprehensive remedy and, as a direct result,
experience a large amount of subscription churn”; (5) had a “company-wide effort to cover up
visible signs of rust and/or corrosion” on the Bikes, and, accordingly, “the risks posed by design
or manufacturing defect . . . were not merely hypothetical and Defendants did not prioritize the
safety of Peloton Bike users”; and (6) “understated reserves for future product recall expenses by
at least $40 million and the indirect impact a large-scale recall of Bikes would have on its
Subscription revenue.” (See generally id. ¶¶ 168–215.)
e. Peloton recalls Bikes sold between 2018 and 2023
On May 11, 2023, Peloton announced a recall of all Bikes sold between January of 2018
and May of 2023. (Id. ¶ 221.) After announcing the recall, Peloton’s stock price fell
approximately 9.3%. (Id. ¶ 225.) Plaintiffs state that “[n]evertheless, the financial community
remained upbeat that the impact of the [r]ecall would be short-lived based on [Peloton’s]
misleading estimate that the [corrective action plan] would cost it $8.4 million.” (Id. ¶ 226.)
Plaintiffs allege that Defendant McCarthy “began to reveal the true extent” of the recall at
a May 24, 2023 industry conference, where he disclosed that Peloton had already “received more
than 500,000 requests for a replacement [seat] post,” which was more than Defendants were
expecting, and estimated that the seat post replacement cost would total “somewhere in the
neighborhood of” $10 million to $20 million. (Id. ¶ 228.) Peloton’s stock price decreased
approximately 5.1% over the next three days. (Id. ¶ 229.) In Peloton’s August 23, 2023
quarterly letter to shareholders, Peloton stated that the recall “substantially exceeded” their initial
estimate, “leading to an additional accrual of $40 million this quarter for actual costs incurred as
well as anticipated future recall-related expenses.” (Id. ¶ 231.) The letter stated that Peloton had
(1) received approximately “750,000 requests for replacement [seat] posts,” (2) “lost 29,000
subscriptions from the previous quarter,” and (3) at least an additional 20,000 Peloton users
paused their subscription that quarter in comparison to the three previous quarters. (Id. ¶¶ 231–
32, 235 (emphasis omitted).) Prior to the recall news, Peloton’s subscriptions “consistently grew
quarter-over-quarter ever since Peloton went public in 2019.” (Id. ¶ 232.) Peloton’s churn rate
grew from 1.1% in the three preceding quarters to 1.8%, including subscription losses. (Id.)
Peloton’s stock price fell by 22.6% on August 23, 2023. (Id. ¶ 233.) Plaintiffs allege that
Defendants made a series of misleading statements and failed to disclose material facts related to
recurring Bike defects, leading to “the precipitous decline in the market value” of Peloton’s stock
price from $32.05 on February 16, 2022, the date of the first Financial Times article on Project
Tinman, to $5.41 on August 23, 2023. (Id. ¶¶ 307–12.)
II. Discussion
a. Standard of review
In reviewing a motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil
Procedure, a court “must construe [the complaint] liberally, accepting all factual allegations
therein as true and drawing all reasonable inferences in the plaintiff[’s] favor.” Sacerdote v. N.Y.
Univ., 9 F.4th 95, 106–07 (2d Cir. 2021) (citing Palin v. N.Y. Times Co., 940 F.3d 804, 809 (2d
Cir. 2019)); see also Vaughn v. Phoenix House N.Y. Inc., 957 F.3d 141, 145 (2d Cir. 2020)
(“[The Second Circuit] review[s] de novo a district court’s dismissal of a complaint pursuant to
Rule 12(b)(6), construing the complaint liberally, accepting all factual allegations in the
complaint as true, and drawing all reasonable inferences in the plaintiff’s favor.” (quoting
Chambers v. Time Warner, Inc., 282 F.3d 147, 152 (2d Cir. 2002))). A complaint must plead
“enough facts to state a claim to relief that is plausible on its face.” Bell Atl. Corp. v. Twombly,
550 U.S. 544, 570 (2007); New Yorkers for Religious Liberty, Inc. v. New York, 125 F.4th 319,
327 (2d Cir. 2024) (quoting Twombly, 550 U.S. at 570). A claim is plausible “when the plaintiff
pleads factual content that allows the court to draw the reasonable inference that the defendant is
liable for the misconduct alleged.” Matson v. Bd. of Educ. of City Sch. Dist. of N.Y., 631 F.3d
57, 63 (2d Cir. 2011) (quoting Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)); see Roe v. St. John’s
Univ., 91 F.4th 643, 651 (2d Cir. 2024) (quoting Matson, 631 F.3d at 63) (same); Cavello Bay
Reinsurance Ltd. v. Shubin Stein, 986 F.3d 161, 165 (2d Cir. 2021) (quoting Iqbal, 556 U.S. at
678) (same); see also Salazar v. Nat’l Basketball Ass’n, 118 F.4th 533, 544 (2d Cir. 2024)
(“[T]he plaintiff’s allegations must enable the court to reasonably infer that the defendant is
liable for the alleged misconduct”), cert. denied sub nom., NBA v. Salazar, 146 S. Ct. 880
(2025); Emilee Carpenter, LLC v. James, 107 F.4th 92, 99 (2d Cir. 2024) (“[S]urviv[ing] a
motion to dismiss . . . requires ‘factual content that allows the court to draw the reasonable
inference that the defendant is liable for the misconduct alleged.’” (quoting Iqbal, 556 U.S. at
678)). Although all allegations contained in the complaint are assumed to be true, this tenet is
“inapplicable to legal conclusions.” Iqbal, 556 U.S. at 678; see Roe, 91 F.4th at 651 (“Although
all factual allegations contained in the complaint are assumed to be true, this rule does not extend
‘to legal conclusions. Threadbare recitals of the elements of a cause of action, supported by
mere conclusory statements, do not suffice.’” (quoting Iqbal, 556 U.S. at 678)).
b. Plaintiffs fail to plead that Defendants made an actionable misstatement
Defendants argue that Plaintiffs’ claims under the Exchange Act must be dismissed
because they fail to plead any materially misleading statements or omissions pursuant to the
heightened pleading requirement for a claim of securities fraud. (Defs.’ Mem. 11–18.) In
support, Defendants contend that Plaintiffs fail to satisfy the heightened pleading requirement
because Defendants fail to plead “with particularity” that Defendants made a material
misrepresentation or omission that: (1) Peloton’s risk disclosures were false or misleading, (id. at
11–14); (2) the lost accrual was false or misleading, (id. at 14–15); (3) statements regarding
product safety and quality were false or misleading, (id. at 16–17); (4) statements concerning
Project Tinman were false or misleading, (id. at 17–18); and (5) statements concerning Peloton’s
subscriptions were false or misleading, (id. at 18–19).8 Defendants contend that because the
SAC “rehashes claims and allegations the Court previously found insufficient,” the Court should
find the amended claims insufficient. (Id. at 11.)
Plaintiffs argue that they adequately allege material misrepresentations by Defendants.
(Pls.’ Opp’n 9–22.) In support, Plaintiffs contend that Defendants’ statements regarding (1) risk
disclosures, (id. at 15–18), (2) loss accrual, (id. at 20–22), (3) product safety and quality, (id. at
9–15), (4) Project Tinman, (id. at 7–8), and (5) subscriptions, (id. at 18–20), were materially
false and misleading when made.
Section 10(b) makes it unlawful to “use or employ, in connection with the purchase or
sale of any security . . . any manipulative or deceptive device or contrivance in contravention of
such rules and regulations as the [SEC] may prescribe.” 15 U.S.C. § 78j(b); see also City of
8 Defendants only argue that Plaintiffs failed to plead the first two factors, that a
defendant (1) made misstatements or omissions of material fact (2) with scienter. First,
Defendants argue that Plaintiffs failed to plead an actionable misstatement. (Defs.’ Mem. 11–19;
Defs.’ Reply 1–7; see SAC ¶¶ 168–215.) Second, Defendants argue that Plaintiffs failed to plead
a strong inference of scienter. (Defs.’ Mem. 19–30; Defs.’ Reply 7–12; SAC ¶¶ 237–303.)
Defendants do not address the remaining three factors (i.e., (3) in connection with the purchase
or sale of securities; (4) upon which plaintiffs relied; and (5) that plaintiffs’ reliance was the
proximate cause of their injury). Moreover, as discussed below, because Defendants do not
move to dismiss based upon these three additional factors, and because Plaintiffs failed to plead
that Defendants made (1) misstatements or omissions of material fact (2) with scienter, the Court
does not address the remaining factors. See Hassan v. Bos. Beer Co., Inc., No. 23-8, 2023 WL
8110940, at *3 n.2 (2d Cir. Nov. 22, 2023) (summary order) (“Because the amended complaint
fails to sufficiently allege misstatements or omissions of material fact, we need not address the
issue of scienter.”); Peneycad v. RTX Corp., No. 23-CV-1035, 2025 WL 2636616, at *26 n.6 (D.
Conn. Sep. 12, 2025) (“Having decided that [p]laintiffs fail to allege either a material
misrepresentation or the requisite scienter, the [c]ourt need not and does not decide whether the
other factors have been satisfied.”), appeal docketed, No. 25-2549 (2d. Cir Oct. 16, 2025); Burns
v. UP Fintechup Fintech Holding Ltd., No. 24-CV-1632, 2025 WL 936539, at *5 (S.D.N.Y.
Mar. 27, 2025) (“The [c]ourt first addresses [d]efendants’ alleged material omissions and finds
that [p]laintiff fails to plead an actionable misstatement or omission. As such, the court declines
to consider the parties’ scienter arguments.”).
Hialeah Employees’ Ret. Sys. v. Peloton Interactive, Inc., 153 F.4th 288, 295 (2d Cir. 2025)
(quoting 15 U.S.C. § 78j(b)) (same); VR Glob. Partners, L.P. v. Petroleos de Venezuela, S.A.,
No. 24-1176, 2024 WL 4891271, at *3 (2d. Cir. Nov. 26, 2024) (summary order) (same); In re
Synchrony Fin. Sec. Litig., 988 F.3d 157, 167 (2d Cir. 2021) (same); Giunta v. Dingman, 893
F.3d 73, 79 (2d Cir. 2018) (same). To state a claim for securities fraud under Section 10(b) or
Rule 10b-5 of the Exchange Act, “a plaintiff must allege that the defendant: (1) made
misstatements or omissions of material fact; (2) with scienter; (3) in connection with the
purchase or sale of securities; (4) upon which plaintiffs relied; and (5) that plaintiffs’ reliance
was the proximate cause of their injury.” Nandkumar v. AstraZeneca PLC, No. 22-2704, 2023
WL 3477164, at *1 (2d Cir. May 16, 2023) (summary order) (quoting Gamm v. Sanderson
Farms, Inc., 944 F.3d 455, 463 (2d Cir. 2019)); In re Synchrony Fin. Sec. Litig., 988 F.3d at 167
(quoting Stratte-McClure v. Morgan Stanley, 776 F.3d 94, 100 (2d Cir. 2015), abrogated by
Macquarie Infrastructure Corp. v. Moab Partners, L. P., 601 U.S. 257 (2024))) (same); Setzer v.
Omega Healthcare Invs., Inc., 968 F.3d 204, 212 (2d Cir. 2020) (quoting ATSI Commc’ns, Inc. v.
Shaar Fund, Ltd., 493 F.3d 87, 105 (2d Cir. 2007)) (same); see also Singh v. Cigna Corp., 918
F.3d 57, 62 (2d Cir. 2019) (“To avoid dismissal under Section 10(b) and Rule 10b-5, a complaint
must plausibly allege: ‘(1) a material misrepresentation (or omission); (2) scienter, i.e., a
wrongful state of mind; (3) a connection with the purchase or sale of a security; (4) reliance . . . ;
(5) economic loss; and (6) loss causation.’” (quoting Kleinman v. Elan Corp., plc, 706 F.3d 145,
152 (2d Cir. 2013))). A plaintiff must make a threshold showing that the defendant made the
material misrepresentation. See 17 C.F.R. § 240.10b-5 (“It shall be unlawful for any person,
directly or indirectly . . . [t]o make any untrue statement of a material fact or to omit to state a
material fact necessary . . . .” (emphasis added)); Halliburton Co. v. Erica P. John Fund, Inc.,
573 U.S. 258, 267 (2014) (“Section 10(b) of the Securities Exchange Act of 1934 and the
Securities and Exchange Commission’s Rule 10b-5 prohibit making any material misstatement
or omission in connection with the purchase or sale of any security.” (emphasis added)); City of
Hialeah Employees’ Ret. Sys., 153 F.4th at 295 (Rule 10b-5 provides that it is unlawful “[t]o
make any untrue statement of a material fact or to omit to state a material fact necessary in order
to make the statements made, in the light of the circumstances under which they were made, not
misleading . . . in connection with the purchase or sale of any security.” (alterations in original)
(quoting 17 C.F.R. § 240.10b-5)). In addition, a claim of securities fraud under Section 10(b) is
“subject to the heightened pleading requirements of Rule 9(b) of the Federal Rules of Civil
Procedure and the Private Securities Litigation Reform Act of 1995 (‘PSLRA’).” Wyche v. Adv.
Drainage Sys., Inc., 710 F. App’x 471, 473 (2d Cir. 2017) (citing Tellabs, Inc. v. Makor Issues &
Rights, Ltd., 551 U.S. 308, 313 (2007)); see also Hassan v. Bos. Beer Co., No. 23-8, 2023 WL
8110940, at *1 (2d Cir. Nov. 22, 2023) (summary order) (citing Rombach v. Chang, 355 F.3d
164, 170–71 (2d Cir. 2004)) (same); City of Pontiac Policemen’s & Firemen’s Ret. Sys. v. UBS
AG, 752 F.3d 173, 184 (2d Cir. 2014) (citing Anschutz Corp. v. Merrill Lynch & Co., Inc., 690
F.3d 98, 108 (2d Cir.2012)) (same).
Claims under Section 10(b) require “(1) the existence of either a misstatement or an
unlawful omission; and (2) materiality.” Steamfitters Loc. 449 Pension Plan v. AT&T Inc., No.
21-2698-CV, 2022 WL 17587853, at *3 (2d Cir. Dec. 13, 2022) (summary order) (quoting In re
Morgan Stanley Info. Fund Sec. Litig., 592 F.3d 347, 360 (2d Cir. 2010)); In re Synchrony Fin.
Sec. Litig., 988 F.3d at 170 (“The materiality of an item of information is a mixed question of
law and fact.” (quoting S.E.C. v. First Jersey Sec., Inc., 101 F.3d 1450, 1466 (2d Cir. 1996))); In
re Morgan Stanley Info. Fund Sec. Litig., 592 F.3d at 360 (“However, because the materiality
element presents ‘a mixed question of law and fact,’ it will rarely be dispositive in a motion to
dismiss.” (quoting ECA v. JP Morgan Chase, 553 F.3d 187, 197 (2d Cir.2009))). “A violation of
Section 10(b) and Rule 10b-5 premised on misstatements cannot occur unless an alleged material
misstatement was false at the time it was made.” In re Lululemon Sec. Litig., 14 F. Supp. 3d 553,
571 (S.D.N.Y. 2014), aff’d, 604 Fed. App’x. 62 (2d Cir. 2015); San Leandro Emergency Med.
Grp. Profit Sharing Plan v. Philip Morris Cos., Inc., 75 F.3d 801, 812 (2d Cir. 1996) (“Plaintiffs
allege no circumstances to support their allegation that the allegedly false statements, made at
least three weeks before the . . . figure was announced, were false at the time made.”). “The test
for whether a statement is materially misleading under Section 10(b) . . . is ‘whether the
defendants’ representations, taken together and in context, would have misled a reasonable
investor.’” City of Hialeah Employees’ Ret. Sys., 153 F.4th at 295 (quoting Rombach, 355 F.3d
at 172 n.7; Steamfitters Loc. 449 Pension Plan, 2022 WL 17587853, at *3 (noting that the
definition of materiality under Section 10(b) is “whether the defendants’ representations, taken
together and in context, would have misled a reasonable investor” (quoting In re Morgan Stanley
Info. Fund Sec. Litig., 592 F.3d at 360)); Altimeo Asset Mgmt. v. Qihoo 360 Tech. Co., 19 F.4th
145, 151 (2d Cir. 2021) (“A statement is materially misleading when ‘the defendants’
representations, taken together and in context, would have misled a reasonable investor.’”
(quoting Rombach, 355 F.3d at 172 n.7; see also Singh, 918 F.3d at 63 (explaining that allegedly
misleading statements are “evaluated not only by literal truth, but by context and manner of
presentation” (internal quotations omitted)). “A statement or omission is material if ‘a
reasonable investor would have considered [it] significant in making investment decisions.’”
Altayyar v. Etsy, Inc., 731 F. App’x 35, 37 (2d Cir. 2018) (alteration in original) (quoting Ganino
v. Citizens Utils. Co., 228 F.3d 154, 161–62 (2d Cir. 2000)); see also Steamfitters Loc. 449
Pension Plan, 2022 WL 17587853, at *2 (“A statement or omission is material if ‘there is a
substantial likelihood that a reasonable shareholder would consider it important in deciding how
to [act].’” (alteration in original) (quoting ECA, Loc. 134 IBEW Joint Pension Tr. of Chicago v.
JP Morgan Chase Co., 553 F.3d 187, 197 (2d Cir. 2009))); Singh, 918 F.3d at 63 (“An alleged
misrepresentation is material if ‘there is a substantial likelihood that a reasonable person would
consider it important in deciding whether to buy or sell shares of stock.’” (quoting Operating
Local 649 Annuity Tr. Fund v. Smith Barney Fund Mgmt. LLC, 595 F.3d 86, 92–93 (2d Cir.
2010))); United States v. Litvak, 889 F.3d 56, 64 (2d Cir. 2018) (“A misstatement in a securities
transaction is material so long as there is a substantial likelihood that a reasonable investor would
find the misrepresentation important in making an investment decision.” (alteration and internal
quotations omitted)).
Section 10(b) “do[es] not create an affirmative duty to disclose any and all material
information.” Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27, 44 (2011); see also Ark. Pub.
Emps. Ret. Sys. v. Bristol-Myers Squibb Co., 28 F.4th 343, 353 (2d Cir. 2022) (“Just because a
reasonable investor would very much like to know a fact does not create any obligation to speak
up.”) (internal quotations and citation omitted); In re ProShares Tr. Sec. Litig., 728 F.3d 96, 101
(2d Cir. 2013) (“Materiality alone does not demand disclosure.” (quoting Panther Partners, Inc.
v. Ikanos Commc’ns, Inc., 538 F. Supp. 2d 662, 668 (S.D.N.Y. 2008), aff’d, 347 F. App’x 617
(2d Cir. 2009))). When a company does not have an obligation to speak but does so anyway, it
assumes “a duty to be both accurate and complete.” Gimpel v. The Hain Celestial Grp., Inc., 156
F.4th 121, 139 (2d Cir. 2025) (quoting Caiola v. Citibank, N.A., 295 F.3d 312, 331 (2d Cir.
2002)); see also Setzer, 968 F.3d at 214 n.15 (“[E]ven when there is no existing independent
duty to disclose information, once a company speaks on an issue or topic, there is a duty to tell
the whole truth.” (quoting Meyer v. Jinkosolar Holdings Co., Ltd., 761 F.3d 245, 250 (2d Cir.
2014))); In re Morgan Stanley Info. Fund Sec. Litig., 592 F.3d at 366 (explaining that once a
corporation makes “a disclosure about a particular topic, whether voluntary or required, the
representation must be complete and accurate” (internal quotations and citations omitted)).
“[L]iterally true statements” are actionable if they “create a materially misleading impression.”
Set Cap. LLC v. Credit Suisse Grp. AG, 996 F.3d 64, 85 (2d Cir. 2021) (quoting Wilson v.
Merrill Lynch & Co., 671 F.3d 120, 130 (2d Cir. 2011)); SEC v. Gabelli, 653 F.3d 49, 57 (2d
Cir. 2011) (“[L]iterally true statements that create a materially misleading impression [] will
support claims for securities fraud.”), rev’d and remanded on other grounds, 568 U.S. 442
(2013). “The literal truth of an isolated statement is insufficient; the proper inquiry requires an
examination of defendants’ representations, taken together and in context.” In re Synchrony Fin.
Sec. Litig., 988 F.3d at 171 (quoting In re Morgan Stanley Info. Fund Sec. Litig., 592 F.3d at
366). Thus, plaintiffs “may not cherry pick certain public statements for [their] complaint and
divorce them from the universe of disclosed information to plausibly allege fraud.” In re
Synchrony Fin. Sec. Litig., 988 F.3d at 171.
i. Risk disclosures
Defendants argue that Peloton’s risk disclosures between May of 2021 and November of
2022 warning investors of risks related to product defects and recalls were not materially
misleading because they were “precisely the kinds of risks that later materialized.” (Defs.’ Mem.
11–12.) First, Defendants argue that Plaintiffs fail to establish that Defendants knew that a
“product recall covering millions of Bikes was inevitable” simply because Defendants regularly
received reports of the seat post issue at the time of the risk disclosures. (Id. at 13.) Second,
Defendants argue that the allegation that some Bikes were assembled “using parts that were not
made to specifications” and that Peloton used the “Just Ship It” slogan cannot save Plaintiffs’
claim because they are “not connect[ed] whatsoever to the seat post recall,” (id.) and they fail to
allege that “Defendant[s] knew that these [purported part specification] issue ‘would lead to a
recall of every Bike Peloton sold between 2018 and 2023.’” (Id. at 25.) Third, Defendants
contend that even if Plaintiffs suggest that certain Bikes were “at increased risk of experiencing a
product problem of some kind in the future because of the specification issue,” any increase in
risk is nevertheless “insufficient to render risk disclosures materially false or misleading.” (Id. at
13.)
Plaintiffs argue that Defendants’ risk disclosures were materially misleading because they
misrepresented the known seat post defect. (Pls.’ Opp’n 9–11.) First, Plaintiffs contend that
Defendants’ risk disclosures are materially misleading because “they were framed as
hypothetical, future risks, but had already materialized.” (Id. at 15.) Second, Plaintiffs provide
in the SAC the specific statements of several confidential witnesses who allege that Defendants
received regular reports distributed by the Escalations team and the Member Support Team that
“escalated dangerous safety issues” regarding the seat post sufficient to render the risk disclosure
materially false or misleading. (Id. at 10, 18; see SAC ¶¶ 73–85.) Third, Plaintiffs allege that
Defendant McCarthy had read “at least some” of such reports because he would forward, and
direct Member Support to resolve, customer complaints. (SAC ¶ 85.) Finally, Plaintiffs argue
that Defendants failed to update the disclosures to “inform investors that the Bike was already
experiencing defects and adversely impacting Peloton’s operations.” (Pls.’ Opp’n 17.)
Peloton’s risk disclosures are not materially misleading because they explicitly warned
investors that their products “may be affected from time to time by design and manufacturing
defects” that could “adversely affect our business and result in harm to our reputation.” (SAC ¶
171.) When registration statements warning the exact risk later materializes, a securities law
fraud claim “will not lie as a matter of law.” In re ProShares Tr. Sec. Litig., 728 F.3d at 102
(quoting In re ProShares Trust Sec. Litig., 889 F. Supp. 2d 644, 653 (S.D.N.Y 2012)); see also
Panther Partners, 538 F. Supp. 2d at 672 (“An accurate statement coupled with the precise
disclosure of a risk later realized cannot adequately form the basis for a securities claim.”).
Plaintiffs incorrectly argue that the risk disclosures are materially misleading because
“the risk disclosures’ plain text identifies product ‘defects’ as the risk,” which they argue had
already manifested when the statements were made. (Pls.’ Opp’n 17 (stating that Defendants
failed to “inform investors that the Bike was already experiencing defects and adversely
impacting Peloton’s operations” (emphasis added)).) However, the risk disclosures did not
identify the “defects” as the risk. Instead, the risk disclosures identified the “adverse[] [e]ffect
on business” as the risk. See Hou Liu v. Intercept Pharm., Inc., No. 17-CV-7371, 2020 WL
1489831, at *12 (S.D.N.Y. Mar. 26, 2020) (concluding that a risk disclosure was not materially
misleading because the statement that defendant’s product “‘may result in side effects, adverse
reactions or misuse’ was made in the context that these events were ones that could affect [the
defendant’s] income”); see also Nurlybayev v. ZTO Express (Cayman) Inc., No. 17-CV-6130,
2021 WL 1226865, at *7 (S.D.N.Y. Mar. 31, 2021) (concluding that a general warning that sales
could be adversely affected upon the occurrence of an event was not misleading even though the
event had occurred because the company’s sales had not been adversely affected). Accordingly,
Peloton’s risk disclosures would be materially misleading only if, when the risk disclosures were
made, (1) the “adverse[] [e]ffect” on business had already materialized, or (2) Defendants knew
of an impending “adverse[] [e]ffect” on business.
Plaintiffs fail to plead facts supporting either scenario. First, Plaintiffs do not allege that
there was an adverse effect on Peloton’s business at the time of the risk disclosures. While
Plaintiffs challenge the risk disclosures issued between May of 2021 and November of 2022,
they do not allege facts showing that an adverse effect on business had occurred during this
period, which is required to render the risk disclosures materially misleading. Instead, Plaintiffs
allege the first adverse effect on Peloton’s business occurred in May of 2023, which was when
Peloton’s stock price began falling. (See SAC ¶ 12.) See Intercept Pharm., 2020 WL 1489831,
at *12 (“If, when the statements were made, any misuse or adverse events had affected [the
defendant’s] earnings negatively, then the statement would have been misleading.”); see also
Nurlybayev, 2021 WL 1226865, at *7 (concluding that plaintiffs were not “materially misled by
the purported warning about events that had already occurred” because the company had not yet
experienced any “adverse effects” and thus no risk had materialized (citation omitted)).
Second, Plaintiffs do not sufficiently allege that Defendants knew of an impending
adverse effect on Peloton’s business at the time of the risk disclosures. As discussed above,
while Plaintiffs challenge the risk disclosures issued over a period of approximately a year and a
half, they do not allege that Defendants knew of and withheld information of an impending
adverse effect on business. Instead, Plaintiffs rely on their argument that Defendants were
informed of the issues with the Bike seat post, (see Pls.’ Opp’n 15–16), to allege a securities law
violation. However, Plaintiffs insufficiently argue that Defendants’ knowledge of customer
complaints meant that Defendants knew that such customer complaints would later lead to an
adverse effect on business, let alone a recall of every Bike Peloton sold between 2018 to 2023.
See In re Lululemon Sec. Litig., 14 F. Supp. 3d at 571 (“A violation of Section 10(b) and Rule
10b-5 premised on misstatements cannot occur unless an alleged material misstatement was false
at the time it was made.”); Lachman v. Revlon, Inc., 487 F. Supp. 3d 111, 130 (E.D.N.Y. 2020)
(“Plaintiffs’ failure to plead facts supporting the inference that defendants knew of additional
material risks at the time of the [Form] 10-K is an additional reason that the alleged omission is
not actionable.”); Bratusov v. Comscore, Inc., No. 19-CV-3210, 2020 WL 3447989, at *14
(S.D.N.Y. June 24, 2020) (“The allegations do not suggest, let alone plead with particularity, that
any [d]efendant had knowledge of facts contradicting the [a]lleged [m]isstatements, and
therefore the confidential witnesses’ statements are insufficient to plead an intent to defraud.”).
Plaintiffs’ addition of testimony from several confidential witnesses in the SAC in further
support of this argument is unavailing because the testimony fails to establish Defendants’
knowledge of a future adverse impact on business. See Patel v. Koninklijke Philips N.V., No. 21-
CV-4606, 2024 WL 4265758, at *7 n.4 (E.D.N.Y. Sep. 23, 2024), reconsideration denied, 2025
WL 3004925 (E.D.N.Y. Oct. 27, 2025) (“[Confidential witness allegations] must show that
individual defendants actually possessed the knowledge highlighting the falsity of public
statements; conclusory statements that defendants were aware of certain information, and mere
allegations that defendants would have or should have had such knowledge is insufficient.”
(quoting In re Nielsen Holdings PLC Sec. Litig., 510 F. Supp. 3d 217, 228–29 (S.D.N.Y. 2021))).
Third, Peloton’s risk disclosures are not materially misleading because Peloton did not
have an “affirmative duty to disclose any and all material information.” See Ark. Tchr. Ret. Sys.
v. Goldman Sachs Grp., Inc., 77 F.4th 74, 100 (2d Cir. 2023) (quoting In re Vivendi, S.A. Sec.
Litig., 838 F.3d 223, 239 (2d Cir. 2016)). Even if Defendants were aware of the issues with the
Bike seat post, Plaintiffs cannot target Defendants’ risk disclosures by arguing that “had the risk
disclosures contained a detailed admission of severe wrongdoing, a price drop would follow.”
Id. at 101; see In re Allergan PLC Sec. Litig., No. 18-CV-12089, 2019 WL 4686445, at *21
(S.D.N.Y. Sep. 20, 2019) (“To the extent [p]laintiff asserts that [defendant] was insufficiently
specific in warning that a product recall would materialize, it is black letter law that a company is
not obligated to take the gloomiest view of its business.”). Plaintiffs pleading that Defendants’
awareness of an increased risk of recall of the Bike is insufficient for a claim of securities fraud
because Plaintiffs must show Defendants’ knowledge of the certainty or likelihood of a recall
when the risk disclosures were made. See Peneycad v. RTX Corp., 23-CV-1035, 2025 WL
2636616, at *24 (D. Conn. Sep. 12, 2025) (holding that plaintiffs’ allegations that defendants
were aware of the “magnitude of [a] defect and thus mislead investors until disclosing the need
for a large-scale recall . . . are merely conclusory and cannot be sustained on a 12(b)(6) motion to
dismiss, let alone the more stringent standard required by the PSLRA” because plaintiffs failed
to allege facts to demonstrate that defendants were “aware of the magnitude or ‘systemic’ nature
of the defect before it was disclosed to investors”), appeal docketed, No. 25-2549 (2d. Cir Oct.
16, 2025); In re Chembio Diagnostics, Inc. Sec. Litig., 616 F. Supp. 3d 192, 198 (E.D.N.Y.
2022) (holding that plaintiffs had not alleged securities fraud where they only claimed
defendants were aware of an increased risk of a future event, not that defendants knew the event
“was certain or even likely” to occur); Okla. L. Enf’t Ret. Sys v. Papa John’s Int’l, Inc., 517 F.
Supp. 3d 196, 211 (S.D.N.Y. 2021) (dismissing claims because “[a]n increase in a risk does not
mean the risk has already come to pass, such that a[n SEC] disclosure that simply identifies the
risk would be misleading” (first alteration in original) (quoting Constr. Laborers Pension Tr. for
S. Cal. v. CBS Corp., 433 F. Supp. 3d 515, 537–38 (S.D.N.Y. 2020))); Lachman, 487 F. Supp.
3d at 130 (dismissing claims because plaintiffs did not allege facts “supporting the inference that
defendants knew of additional material risks” that a recall would occur “at the time of the” risk
disclosures). In addition, because Plaintiffs do not allege that Defendants knew a seat post recall
would happen when they made the risk disclosures, Plaintiffs’ claims fail because Defendants
cannot be held liable for statements that are only false in hindsight. “[A]llegations that
defendants should have anticipated future events and made certain disclosures earlier than they
actually did do not suffice to make out a claim of securities fraud.” Saraf v. Ebix, Inc., No. 23-
1182, 2024 WL 1298246, at *3 (2d Cir. Mar. 27, 2024) (summary order) (quoting Novak v.
Kasaks, 216 F.3d 300, 309 (2d Cir. 2000)); see also Diabat v. Credit Suisse Grp. AG, No. 23-
CV-5874, 2024 WL 4252502, at *46 (S.D.N.Y. Sep. 19, 2024) (holding that plaintiff
impermissibly pleaded “fraud by hindsight” where plaintiff failed to allege that defendants were
aware of a fact that would eventually transpire at the time of their disclosures, “or that disclosing
this fact was necessary to render any statements that were made not misleading”); In re Shanda
Games Ltd. Sec. Litig., No. 18-CV-2463, 2019 WL 11027710, at *5 (S.D.N.Y. Sep. 30, 2019)
(holding that “fraud-by-hindsight cannot support a 10(b) claim”), adhered to on reconsideration,
2020 WL 5813769 (S.D.N.Y. Sep. 30, 2020).
ii. Loss accrual
Defendants argue that Peloton’s May of 2023 disclosure of an “estimated contingent loss
expense” of $8.4 million following the Bike recall was not false or misleading simply because
the loss accrual subsequently increased. (Defs.’ Mem. 14.) First, Defendants argue that the
warning that (1) “[t]he contingent liability accrual was based on an amount that was deemed
probable and estimable” and (2) the possibility that “any additional accruals for contingent losses
related to this matter could be material” was sufficient “cautionary language” to show that the
accrual remained “forward looking.” (Id.) In addition, Defendants argue that Peloton’s warning
that costs “may” increase in the future was sufficient cautionary language to be protected by the
bespeaks caution doctrine. (Id. at 15.) Second, Defendants argue that their warning was not
misleading simply because Peloton reported the seat post issue to the CPSC because Peloton’s
discussions with the CPSC were fully disclosed. (Id.) Third, Defendants argue that Plaintiffs do
not plead facts showing that Peloton “had already incurred recall-related costs in excess of its
loss accrual” based on its reliance on various CW testimonies. (Id. at 15.) Defendants also argue
that Plaintiffs’ allegation fails because none of the CWs are alleged to have been in Peloton’s
finance organization, analyzed Peloton’s actual or anticipated expenses related to the recall, or
been in communication with the Individual Defendants such that the CWs can establish that the
loss accrual was understated at the time it was issued. (Id.)
Plaintiffs argue that Defendants made actionable material misrepresentations in the May
of 2023 disclosure estimating a loss accrual of $8.4 million. In support, Plaintiffs argue that the
loss accrual was “materially understated” because of (1) Defendants’ knowledge of the volume
of complaints received and Bikes sold and (2) the accrual corrections’ “magnitude and proximity
to the misstatements.” (Pls.’ Opp’n 20–21.) In support, Plaintiffs argue that the “numerous
allegations evidencing Defendants’ knowledge and the defects’ scope” shows that Defendants
“lacked a reasonable basis for the lost accrual,” and as such, the “risk warning was not
meaningful as the increase in reportable incidents was framed as a mere hypothetical.” (Id. at
21.)
Peloton’s May of 2023 statements about the loss accrual were not false or misleading
because they were forward-looking statements not actionable under the bespeaks-caution
doctrine. “[I]t cannot be supposed by a reasonable investor that the future is settled, or
unattended by contingency.” Iowa Pub. Emps.’ Ret. Sys., 620 F.3d 137, 141 (2d Cir. 2010).
Therefore, “a defendant is not liable if the forward-looking statement is identified and
accompanied by meaningful cautionary language or is immaterial or the plaintiff fails to prove
that it was made with actual knowledge that it was false or misleading.” Slayton v. Am. Exp. Co.,
604 F.3d 758, 766 (2d Cir. 2010); see In re Vivendi, S.A. Sec. Litig., 838 F.3d 223, 245–46
(“Because ‘[t]he safe harbor is written in the disjunctive,’ a forward-looking statement is
protected under the safe harbor if any of the three prongs [in Slayton, 604 F.3d at 766] applies.”).
“A forward-looking statement accompanied by sufficient cautionary language is not actionable
because no reasonable investor could have found the statement materially misleading.” Iowa
Pub. Emps.’ Ret. Sys., 620 F.3d at 141; see United States v. Velissaris, No. 23-6379, 2024 WL
4502001, at *2 (2d Cir. Oct. 16, 2024) (summary order) (quoting id.) (same); see also Mangrove
Partners, 2025 WL 1420914, at *2 (explaining that a defendant is not liable for a forward-
looking statement that “is identified and accompanied by meaningful cautionary language”
(quoting In re Vivendi, 838 F.3d at 245)).
Peloton’s May of 2023 disclosures are also not actionable because the warning that the
$8.4 million loss was an “estimated contingent loss” based on “an amount that was deemed
probable and estimable,” was forward-looking and contained sufficient cautionary language to
render it non-actionable. In addition, Peloton’s additional statements warning that, because
Peloton was “unable to estimate the amount of such additional losses at this time,” it may “incur
incremental expenses or face other challenges” if, for example, “the number of reported incidents
materially increases,” further supports this conclusion. (Defs.’ Mem. 14; see Q3 2023 Form 10-
Q 18, 44, annexed to Defs.’ Mot. as Ex. 1, Docket Entry No. 50-3.) These statements are non-
actionable because they are forward-looking and sufficiently accompanied by cautionary
language warning of a potential increase in recall-related expenses. See Robeco Cap. Growth
Funds SICAV - Robeco Glob. Consumer Trends v. Peloton Interactive, Inc., 665 F. Supp. 3d 522,
539 (S.D.N.Y. 2023) (finding that Peloton’s SEC risk disclosures were “both specific and
realistic about the precise risks [sic] factors faced by Peloton as a company” and thus shielded
Peloton “from liability for their forward-looking statements”); Gluck v. Hecla Mining Co., 657 F.
Supp. 3d 471, 485 (S.D.N.Y. 2023) (holding that defendants’ Form 10-K and 10-Q disclosures
were “sufficiently specific to insulate [d]efendants from liability” where their “warnings, when
read together, caution[ed] investors of the very risks that [p]laintiffs allege ultimately occurred,”
namely, that the “cost of operating” a new aspect of their business “would ultimately be higher
than expected”); Gray v. Wesco Aircraft Holdings, Inc., 454 F. Supp. 3d 366, 392 (S.D.N.Y.
2020) (holding that defendants’ forward-looking statements included sufficient cautionary
language where they discussed “company-specific factors that the [c]ompany indicated could
cause its results to be either ‘materially better or worse’” than the projections).
In addition, as the Court discussed supra in this Section, Peloton’s May of 2023
disclosures would be materially misleading only if, when the May of 2023 disclosures were
made, (1) the total recall-related expenses had already materialized or (2) Defendants knew of
the total extent of the recall-related expenses. See In re Lululemon Sec. Litig., 14 F. Supp. 3d at
571 (“A violation of Section 10(b) and Rule 10b-5 premised on misstatements cannot occur
unless an alleged material misstatement was false at the time it was made.”); Intercept Pharm.,
2020 WL 1489831, at *12 (“If, when the statements were made, any misuse or adverse events
had affected [defendant’s] earnings negatively, then the statement would have been
misleading.”).
Plaintiffs fail to plead either circumstance. As discussed, Plaintiffs challenge the May of
2023 disclosure of the estimated loss accrual because it underestimated the total loss accrual,
reported in August of 2023, by $40 million. First, while Plaintiffs challenge the $40 million
difference in the loss accrual between the May of 2023 estimate and August of 2023 revision,
they do not allege facts showing that the $40 million difference materialized at the time of the
May of 2023 disclosure, which is required to render the disclosure materially misleading.9
Second, Plaintiffs do not sufficiently allege that Defendants knew of the total extent of
the recall-related expenses at the time of the May of 2023 disclosures. While Plaintiffs challenge
the $40 million difference between the May of 2023 and August of 2023 disclosures, they do not
allege that Defendants knew of and withheld the total extent of the recall expenses. Instead,
Plaintiffs rely on their argument that Defendants were informed of the issues with the Bike seat
post, (see Pls.’ Opp’n 21), to allege a securities law violation. However, as discussed supra in
this Section, Plaintiffs insufficiently argue that Defendants’ knowledge of customer complaints
meant that Defendants knew of the extent of the recall-related expenses that would occur in the
future. Accordingly, Plaintiffs’ argument fails because — Plaintiffs’ reliance on customer
complaints and CW testimonies who were not in positions where they could know of the total
recall-related expenses of which they allege Defendants had knowledge of — is insufficient to
show Defendants’ knowledge of the total recall-related expenses. See Patel, 2024 WL 4265758,
at *7 n.4 (“[Plaintiffs] must show that individual defendants actually possessed the knowledge
highlighting the falsity of public statements.”).10
9 In addition, the SEC filings contained sufficient forward-looking and cautionary
language regarding the possibility of additional accruals by disclosing on May 4, 2023 the $8.4
million of loss accrual related to the seat post issue, (see Q3 2023 Form 10-Q at 18, 44), and
describing the recall to the SEC on May 11, 2023, (see Form 8-K dated May 11, 2023, annexed
to Defs.’ Mot. as Ex. 6, Docket Entry No. 50-8). Cf. City of Hialeah Employees’ Ret. Sys. v.
Peloton Interactive, Inc., 153 F.4th 288, 301 (2d Cir. 2025) (concluding that challenged
statements were plausibly false or misleading because the specific financial consequences
described were not merely hypothetical but had already materialized).
10 Furthermore, even if Plaintiffs sufficiently alleged Defendants’ knowledge, such that
the statements were made with actual knowledge of falsity, the statements would nevertheless be
non-actionable because the cautionary language triggers the safe harbor. See Golesorkhi v.
Green Mountain Coffee Roasters, Inc., 569 F. App’x 43, 44 (2d Cir. 2014) (“[A] defendant is not
iii. Product safety and quality
Defendants argue that Plaintiffs fail to allege that their statements regarding Peloton’s
corporate values, product safety, and product quality were false or misleading. First, they argue
that generic statements regarding putting its “Members First” and its products being the “best”
are not actionable because investors do not rely on generalizations regarding a company’s health
or the strength of its product. (Defs.’ Mem. 16.) Second, Defendants argue that Plaintiffs’
allegations that Peloton was either assembling or shipping products with parts not made to
specifications “cannot render actionable a statement that is inactionable and immaterial as a
matter of law.” (Id.) Third, Defendants argue that Plaintiffs fail to allege any facts showing that
member safety, product quality, and product experience were not Peloton priorities. (Id. at 16–
17.)
Plaintiffs argue that Defendants misrepresented Peloton’s commitment to customer safety
and their products’ quality and performance. First, Plaintiffs argue that Defendants’ statements
putting its “Members first” and its products being the “best” were false and misleading because
Peloton had “pervasive Bike manufacturing and assembly issues,” (Pls.’ Opp’n 12), including
that the Bikes were assembled and shipped with “substandard, out-of-specification parts that
caused a myriad of defects,” (id. at 14). In support, Plaintiffs provide statements from several
liable if the forward-looking statement is identified and accompanied by meaningful cautionary
language or is immaterial or the plaintiff fails to prove that it was made with actual knowledge
that it was false or misleading.” (quoting Slayton v. Am. Exp. Co., 604 F.3d 758, 766 (2d Cir.
2010))); In re Turquoise Hill Res. Ltd. Sec. Litig., 625 F. Supp. 3d 164, 210 (S.D.N.Y. 2022)
(stating that Defendants’ statements, “to the extent they are false” are protected by the PSLRA
and forward-looking statements because “[a]s long as the plaintiff fails to satisfy one of those
elements (e.g., the statement is accompanied by meaningful cautionary language or is
immaterial), the presence of one of the other elements (e.g., the statement was known to be false
or misleading) will not subject to [sic] the defendant to liability.” (quoting Gray v. Wesco
Aircraft Holdings, Inc., 454 F. Supp. 3d 366, 385–86 (S.D.N.Y. 2020), aff’d, 847 F. App’x 35
(2d Cir. 2021))).
confidential witnesses describing Peloton’s practice of “just ship[ping]” Bikes despite failing to
meet quality standards and its creation of Project Tinman as a “covert operation” to cover up its
failure. (Id. at 12, 14–15.) Second, Plaintiffs argue that Defendants “misrepresented the Bike’s
safety and touted safety as Peloton’s top priority while simultaneously omitting that Peloton
knowingly disregarded safety defects.” (Id. at 9.) Third, Plaintiffs argue that given Defendants’
“specific statements about safety,” Defendants had a duty to disclose facts contradicting those
representations. (Id. at 11.)
Peloton’s statements about its corporate values and product safety and quality are not
materially misleading. Specifically, Peloton’s statements about its products being the “best” on
the market, (id. at 12), “obsess[ing] over every touchpoint of our member experience,” (id.), and
putting “members first,” (id.), are inactionable “general promotional language about a product or
company, statements of a company’s integrity, and positive forward-looking statements,”
Steamfitters Loc. 449 Pension Plan, 2022 WL 17587853, at *2. These “‘[g]eneric, indefinite
statements of corporate optimism typically are not actionable’ because reasonable investors do
not place ‘substantial reliance on generalizations regarding a company’s health or the strength of
a company’s product.’” Id. (quoting Abramson v. Newlink Genetics Corp., 965 F.3d 165, 173
(2d Cir. 2020)). Defendants’ statements about Peloton’s corporate values are mere corporate
puffery, which do not give rise to securities violations because they are “too general to cause a
reasonable investor to rely upon them.” See Sherman v. Abengoa, S.A., 156 F.4th 152, 164 (2d
Cir. 2025) (affirming a district court’s conclusion that statements about “strict financial
discipline” and “robust” systems are “[v]ague positive statements and thus “too general” for a
reasonable investor to rely upon them.”) (alteration in original) (quoting In re Synchrony Fin.
Sec. Litig., 988 F.3d at 170)); City of Hialeah Employees’ Ret. Sys., 153 F.4th at 299 (affirming a
district court’s conclusion that Peloton’s specific statement its inventories were “healthy” was
“the type of expression of corporate optimism that [the Second Circuit] consider[s] non-
actionable puffery);11 Diabat, 2024 WL 4252502, at *29 (holding that statements that “touch on
[a c]ompany’s beliefs and expectations” are “classic examples of puffery” (quoting In re Sec.
Cap. Assur. Ltd. Sec. Litig., 729 F. Supp. 2d 569, 597 (S.D.N.Y. 2010))); see also Steamfitters
Loc. 449 Pension Plan, 2022 WL 17587853, at *2 (affirming a district court’s conclusion that
statements about the integrity of the company’s employees, commitments to ethical behavior,
and the company’s code of conduct are “plainly too generic to have been consequential”); ECA,
Loc. 134 IBEW Joint Pension Tr. of Chicago., 553 F.3d at 206 (stating that plaintiffs’ challenged
statements are “too general to cause a reasonable investor to rely upon them”); In re CarLotz,
Inc. Sec. Litig., No. 21-CV-5906, 2024 WL 1348749, at *11 (S.D.N.Y. Mar. 29, 2024) (holding
11 In City of Hialeah Employees’ Ret. Sys., 153 F.4th 288, the Second Circuit evaluated
whether Defendant Foley’s statement during an August 26, 2021 earnings call was plausibly
false or misleading. Defendant Foley was asked whether the Bike price reduction by $400 was
“offensive or defensive.” Id. at 300. In response, Defendant Foley “describe[ed] the company’s
decision to reduce the price of its bike by $400 as an ‘absolutely offensive’ business strategy.”
Id. Unlike its conclusion that Defendant Foley’s statement about inventory being “healthy” was
inactionable, the court concluded that his characterization of the price reduction as “absolutely
offensive” was plausibly false or misleading based on plaintiff’s allegations that (1) the former
senior director of operations and supply-chain management stated that “the August 2021 price
reduction on the original Bike was an attempt to increase sales because Peloton had so much
excess inventory” and (2) confidential witnesses reported details about the company’s inventory
build-up. Id. In the case before the Court, Plaintiffs’ allegations do not “present inconsistencies”
in Defendants’ statements that would require further inquiry because statements regarding its
“Members First” approach and its commitment to quality and safety are generalizable statements
of inactionable corporate puffery that are too generic to be rendered inconsistent. Id.; see
Steamfitters Loc. 449 Pension Plan v. AT&T Inc., No. 21-2698-CV, 2022 WL 17587853, at *2
(2d Cir. Dec. 13, 2022) (summary order) (“‘Generic, indefinite statements of corporate optimism
typically are not actionable’ because reasonable investors do not place ‘substantial reliance on
generalizations regarding a company's health or the strength of a company’s product.’” (quoting
Abramson v. Newlink Genetics Corp., 965 F.3d 165, 173 (2d Cir. 2020))).
that a company’s description of its business model as having “best-in-class unit economics” was
corporate puffery).
iv. Project Tinman
Defendants argue that Plaintiffs do not allege any facts suggesting that the February of
2022 Financial Times statement regarding Project Tinman was false or misleading because they
fail to show that the cosmetic oxidation issue was not isolated, abnormal, or structural. (Defs.’
Mem. 17–18.) First, Defendants contend that Plaintiffs’ allegations “support the inference that
the cosmetic rust issue was . . . isolated and abnormal” because it was “limited to certain Bikes
originating from Peloton’s Taiwan manufacturer that were ‘exposed to humidity and weather.’”
(Id. at 17–18 (quoting SAC ¶¶ 146, 156).) Second, Defendants argue that Plaintiffs’ factual
allegations do not dispute Peloton’s conclusion that the rust issue was “non-structural” and
would have no effect on a Bike’s quality, durability, or reliability, (id. at 17; Defs.’ Reply 5–6),
and Plaintiffs do not allege that the rust or its removal affected “structural safety issues with the
Bike or was connected in any way with the recall of the Bike seat post years later,” (Defs.’ Mem.
18).
Plaintiffs argue that Defendants’ February of 2022 Financial Times statement regarding
Project Tinman was false or misleading because the Bike’s rust issues were not isolated,
abnormal, or lacking an effect on quality because it impacted thousands of bikes, resulting in
“hundreds at least if not thousands of complaints.” (Pls.’ Opp’n 13; see SAC ¶¶ 200–01.) In
support, Plaintiffs contend that the manufacturer in Taiwan “was one of two major
manufacturing partners,” (Pls.’ Opp’n 14), and that the Bike’s rust issues impacted structural
areas, requiring several of the confidential witnesses to inspect the Bikes for corrosion, (id. at
13).
Peloton’s February of 2022 statement in the Financial Times was not materially
misleading because Plaintiffs fail to allege any facts that the rust was not isolated, abnormal, or
“related to any structural problem with the Bike.” (See Defs.’ Reply 5.)
A. Plaintiffs fail to allege that the rust was not isolated or
abnormal
Plaintiffs fail to allege that Defendants’ statement that the rust was isolated or abnormal
was materially misleading. Specifically, Plaintiffs fail to meaningfully dispute Defendants’
argument that the rust was isolated to Bikes only “originating from Peloton’s Taiwan
manufacturer that were ‘exposed to humidity and weather.’” (See Defs.’ Mem. 17–18).
First, Plaintiffs fail to allege that the rust issue was not isolated to the Taiwan
manufacturer. As discussed supra in this Section, Defendants contend that the rust issue was
isolated and abnormal because it was “limited to certain Bikes originating from Peloton’s
Taiwan manufacturer that were ‘exposed to humidity and weather.’” (Defs.’ Mem. 17–18
(quoting SAC ¶¶ 146, 156).) In challenging Defendants’ contention, Plaintiffs state that
Defendants’ “pinpoint[ing] the problem’s origin is nonsense . . .given that the source (Tonic)12
was one of two major manufacturing partners . . .” for Peloton. (Pls.’ Opp’n 14.) In other words,
Plaintiffs argue that the rust issue could not be “isolated” because the rust issue originated in one
of Peloton’s two major manufacturing partners. Plaintiffs’ argument fails because they do not
plead facts showing that the rust issue was not isolated to bikes “exposed to humidity and
weather,” (Defs.’ Mem. 17–18). Plaintiffs argue that contrary to Defendants’ contention that the
rust issue was isolated to only Bikes that were “exposed to humidity and weather,” from Taiwan,
(Defs.’ Mem. 17–18), the “rust impacted thousands of already-defective Bikes,” (Pls.’ Opp’n
14). However, this argument does not meaningfully contradict Defendants’ contention that the
12 “Tonic” is the name of Peloton’s manufacturer in Taiwan. (SAC ¶ 98.)
rust issue was isolated to only Bikes that were “exposed to humidity and weather” from
Taiwanese manufacturer because Plaintiffs do not allege facts about the number of Bikes that
were impacted by the rust issue to render Defendants’ statement false. In addition, Plaintiffs’
allegation that the rust was not isolated because it impacted “thousands” of Bikes fails because
Plaintiffs do not plead facts showing the percentage of rust-impacted Bikes with sufficient
particularity for the Court to conclude that the rust was not isolated. In addition, Defendants
contend that Plaintiffs failed to allege the pervasiveness of the rust by relying on allegations
made by confidential witnesses. Plaintiffs fail to show that the confidential witnesses who
inspected the Bike at various warehouses and engaged in getting rid of the rust possessed
sufficient knowledge that the rust issue was “pervasive” in the 2.2 million bikes sold because, on
the whole, the confidential witnesses possessed knowledge only about the warehouse where they
worked.13 Similarly, Plaintiffs do not plead facts about the percentage of Bikes that were
impacted by the rust to render Defendants’ statement that it was “isolated” to impacted bikes
from the Taiwanese manufacturer false. See Schiro v. Cemex, S.A.B. de C.V., 396 F. Supp. 3d
283, 305 (S.D.N.Y. 2019) (“In order for a court to credit the allegations of confidential
witnesses, the witnesses must be ‘described in the complaint with sufficient particularity to
support the probability that a person in the position occupied by the source would possess the
13 The Court notes that Plaintiffs’ allegation that the rust was pervasive can be supported
by the allegations made by confidential witnesses who held more senior roles in Peloton. (See,
e.g., SAC ¶ 35 (“CW8 was a Director-level employee in Operations at Peloton, three levels
below the CEO . . .”); id. ¶ 37 (“CW10 was Director of Global Member Support Operations and
Site Director for Peloton . . . .”).) However, as discussed below, Plaintiffs’ allegations still fail
because Plaintiffs fail to allege that Defendants had knowledge of facts that contradict the
statements such that the statements would be rendered false or misleading. See Bratusov v.
Comscore, Inc., No. 19-CV-3210, 2020 WL 3447989, at *14 (S.D.N.Y. June 24, 2020) (“The
allegations do not suggest, let alone plead with particularity, that any [d]efendant had knowledge
of facts contradicting the [a]lleged [m]isstatements, and therefore the confidential witnesses’
statements are insufficient to plead an intent to defraud.”).
information alleged.’” (quoting Novak, 216 F.3d at 314)); Bratusov, 2020 WL 3447989, at *14
(“The allegations do not suggest, let alone plead with particularity, that any [d]efendant had
knowledge of facts contradicting the [a]lleged [m]isstatements, and therefore the confidential
witnesses’ statements are insufficient to plead an intent to defraud.”). Instead, Plaintiffs’
argument that Defendants would or should have this knowledge fails because the CWs do not
show that Defendants actually had this knowledge, which would render the statements false or
misleading. See Patel, 2024 WL 4265758, at *7 n.4 (“[C]onfidential source allegations must
show that individual defendants actually possessed the knowledge highlighting the falsity of
public statements; conclusory statements that defendants were aware of certain information, and
mere allegations that defendants would have or should have had such knowledge is insufficient.”
(quoting In re Nielsen Holdings, 510 F. Supp. 3d at 228–29); see also Meyer v. Organogenesis
Holdings Inc., 727 F. Supp. 3d 368, 393 (E.D.N.Y. 2024) (dismissing claims where plaintiffs did
not allege defendants’ actionable statements were objectively false or misleading).
Third, Plaintiffs fail to allege the pervasiveness of the rust by relying on “public
reporting” to corroborate the confidential witness testimony. (Pls.’ Opp’n 13). Plaintiffs “must
do more than say that the statements in the press releases were false and misleading; they must
demonstrate with specificity why and how that is so.” See Rombach, 355 F.3d at 174; see also
Meyer, 727 F. Supp. 3d at 393 (dismissing claims where plaintiffs did not allege defendants’
actionable statements were objectively false or misleading).
B. Plaintiffs fail to allege that the rust impacted the
structural areas of the Bike
Plaintiffs fail to allege that Defendants’ statement that the rust was not structural was
materially misleading. As discussed supra in Section II.b., Plaintiffs must show that, at the time
the statement was made, Defendants made a material misrepresentation or omission. See Singh,
918 F.3d at 62 (“To avoid dismissal under Section 10(b) and Rule 10b-5, a complaint must
plausibly allege: ‘(1) a material misrepresentation (or omission) . . . .”). Importantly, claims
under Section 10(b) require that the alleged misstatement was false at the time it was made. See
In re Lululemon Sec. Litig., 14 F. Supp. 3d at 571 (“A violation of Section 10(b) and Rule 10b-5
premised on misstatements cannot occur unless an alleged material misstatement was false at the
time it was made.”). Accordingly, Plaintiffs must show that Defendants knew that the rust was
structural at the time Defendants made the February of 2022 Financial Times statements.
Plaintiffs fail to show that Defendants knew of facts that contradicted the February of
2022 Financial Times statement false. First, Plaintiffs’ argument fails because they do not allege
facts showing that, by February of 2022, Peloton had conducted an internal investigation that
concluded that the rust impacted structural areas of the Bike and affected its quality, durability,
or reliability. (See Defs.’ Reply 5.) See Bratusov, 2020 WL 3447989, at *14 (“The allegations
do not suggest, let alone plead with particularity, that any [d]efendant had knowledge of facts
contradicting the [a]lleged [m]isstatements . . . .”). Second, Plaintiffs’ argument fails because the
facts they do rely on to allege that Defendants knew that the rust impacted structural areas
occurred after the February of 2022 Financial Times statement. Specifically, Plaintiffs argue
that the “inference” that previous efforts to cover [the] rust . . . was insufficient to ensure the
structural integrity of the seat post on the Bike,” (SAC ¶ 266), is supported by a series of actions
taken by Defendants, including: (1) Peloton drawing a distinction between “rust on the joints of
the Bike and rust on all other areas,” (id. ¶¶ 263–64); (2) CW8 “writ[ing] a script to explain that
Peloton did not cover rust damage,” (id. ¶ 265); and (3) photos posted on the Internet of broken
seat posts, including on the forum Reddit, posted in March of 2022, and the Peloton’s Member
Page on Facebook, posted in November of 2022, (id. ¶¶ 116, 118.).14 For example, Plaintiffs
allege that “[b]y no later than March 29, 2022,” Peloton received photographs from customers
showing rust, and “soon thereafter,” Peloton drew a distinction between the “rust on the joints of
the Bike and rust on all other areas,” (SAC ¶¶ 263–64), and “wr[ote] a script to explain that
Peloton did not cover rust damage,” (id. ¶ 265). Even assuming that the above actions supported
Plaintiffs’ “inference” that the rust impacted structural areas of the Bike, Plaintiffs’ argument
nevertheless fails because Plaintiffs allege that the above actions were undertaken after the
February of 2022 statements. In other words, for the above-discussed actions to show that
Defendants made a false or misleading statement in February of 2022, the above-discussed
actions must have occurred before February of 2022 for the Court to conclude that Defendants
had knowledge that the rust impacted structural areas of the Bike, took the above-discussed
actions to correct the rust issue, and nevertheless reported in February of 2022 that the rust did
not impact structural areas of the Bike. See Bratusov, 2020 WL 3447989, at *14 (“The
allegations do not suggest, let alone plead with particularity, that any [d]efendant had knowledge
of facts contradicting the [a]lleged [m]isstatements . . . .”). Because this is not the case here,
Plaintiffs’ argument fails.15
14 In further support of its allegation, Plaintiffs include additional reports posted on the
Internet between July of 2021 and May of 2023. (See generally SAC ¶¶ 109–30.) However,
only two comments made on or around May 11, 2023 discuss rust in the seat post of the Bike.
(Id. ¶ 127.) As discussed, these two comments made on or around May 11, 2023, do not support
Plaintiffs’ allegation because they were made after February of 2022, when the Financial Times
article was published, and the remaining posts do not support Plaintiffs’ allegation because they
do not mention rust in the seat post of the Bike.
15 The Court is not persuaded by Plaintiffs’ attempt to support its allegation with social
media posts, which were not made by Defendants and are therefore speculative. The Court notes
that social media posts used in similar claims were instructive when made by the defendants, and
not the public. See SEC v. Coinbase, Inc., 726 F. Supp. 3d 260, 292 (S.D.N.Y. 2024), (relying,
in part, on defendant’s social media posts to conclude that plaintiff plausibly alleged that
Third, Plaintiffs failed to show that the rust was structural because they rely solely on an
allegation made by a confidential witness to allege that the rust issue impacted structural areas.
(Pls.’ Opp’n 13 (citing SAC ¶ 162).) Plaintiffs rely on CW8’s allegation regarding Defendant
McCarthy’s knowledge of the rust issues from customer complaints, (id.), but this allegation
does not support Plaintiffs’ argument that Defendant McCarthy knew or made statements that the
rust issue was structural. (SAC ¶ 162 (“CW8 ‘ran key word searches for rust at certain points
during the time I was there.[’] According to CW8 ‘there were hundreds at least if not thousands’
of complaints.”).)16
v. Subscriptions
Defendants argue that their statements about Peloton’s churn and goal of prioritizing
subscription growth are inactionable because they are corporate puffery. (Defs.’ Mem. 18–19.)
First, Defendants argue that Plaintiffs’ allegations regarding Bikes that were not made to
specifications and the “Just Ship It” slogan do not render “actionable a statement that is
otherwise inactionable as a matter of law.” (Id. at 18.) Second, Defendants argue that some
statements are immune from liability as forward-looking statements under the PSLRA safe
harbor and the bespeaks caution doctrine. (Id. at 19 n.6.)
purchasers had a reasonable expectation of profits), motion to certify appeal granted, 761 F.
Supp. 3d 702 (S.D.N.Y. 2025).
16 The Court finds unpersuasive Plaintiffs’ argument that the “public reporting”
corroborates the confidential witnesses, (see Pls.’ Opp’n 13), as discussed supra in Section
II.iv.A, because Plaintiffs “must do more than say that the statements in the press releases were
false and misleading; they must demonstrate with specificity why and how that is so.” See
Rombach v. Chang, 355 F.3d 164, 174 (2d Cir. 2004); see also Meyer v. Organogenesis
Holdings Inc., 727 F. Supp. 3d 368, 393 (E.D.N.Y 2024) (dismissing claims where plaintiffs did
not allege defendants’ actionable statements were objectively false or misleading).
Plaintiffs argue first, that Defendants’ statements about churn rates and subscription
growth were false and misleading because, at the time Defendants made the challenged
statements, they knew that “Peloton’s top-selling product was riddled with defects” that
“required maintenance within the first 30–60 days of customers’ ownership,” “were injuring
customers,” and “caused them to cancel subscriptions.” (Pls.’ Opp’n 18–20.) Second, Plaintiffs
argue that Defendants did not make forward-looking statements protected by the safe harbor and
bespeaks caution doctrine because they “describe present conditions about then-existing
practices to keep churn low, continued efforts to prioritize subscription growth, early
achievement of churn and subscription goals, and present churn levels.” (Id. at 19.) Third,
Plaintiffs contend that even if the statements were forward looking, they are nevertheless
unprotected by either the safe harbor or the bespeaks caution doctrine because Defendants’ (1)
“cautionary language was not meaningful” and (2) they “knew that they had no reasonable basis
for making them” based on their knowledge that “obscuring defects and deprioritizing quality
and safety would harm Peloton’s reputation, Bike sales, and subscription growth.” (Id. at 18–
20.)
As discussed supra in section II.b.iii, Defendants’ statements about its churn rates and
subscription growth are inactionable as corporate puffery. See City of Hialeah Employees’ Ret.
Sys., 153 F.4th at 299 (affirming a district court’s conclusion that Peloton’s statements about its
inventories being “healthy” was “the type of expression of corporate optimism that [the Second
Circuit] consider[s] non-actionable puffery); Meyer, 727 F. Supp. 3d at 393–94 (holding that
statements about a company’s “strong execution of our growth and profitability strategy” and
ability to “manage through the near-term operating environment challenges and achieve strong,
long-term growth” are inactionable puffery); ECA, Loc. 134 IBEW Joint Pension Tr. of Chicago,
553 F.3d at 206 (stating that plaintiffs’ challenged statements are “too general to cause a
reasonable investor to rely upon them”); In re CarLotz, Inc. Sec. Litig., 2024 WL 1348749, at
*11 (holding that a company’s description of its business model as having “best-in-class unit
economics” was corporate puffery); Steamfitters Loc. 449 Pension Plan, 2022 WL 17587853, at
*2 (concluding that inactionable statements include “general promotional language about a
product or company, statements of a company’s integrity, and positive forward-looking
statements”).
Accordingly, Plaintiffs fail to satisfy the heightened pleading requirement because
Defendants fail to plead with particularity that Defendants made a material misrepresentation or
omission that: (1) Peloton’s risk disclosures were false or misleading; (2) the lost accrual was
false or misleading; (3) statements regarding product safety and quality were false or misleading;
(4) statements concerning Project Tinman were false or misleading; and (5) statements
concerning Peloton’s subscriptions were false or misleading.
c. Plaintiffs fail to plead scienter under Section 10(b) of the Exchange Act
Defendants argue that Plaintiffs fail to (1) allege a strong inference of scienter as required
by Section 10(b) and (2) satisfy the “[e]xacting pleading requirements” required by the PSLRA.
(Defs.’ Mem. 11.) First, Defendants argue that Plaintiffs fail to allege conscious misbehavior or
recklessness. (Id. at 19–28.) In support, Defendants argue that Plaintiffs fail to allege scienter
based on: (1) customer complaints, (id. at 20–22); (2) Project Tinman, (id. at 22–25); (3)
purported quality and assembly issues, (id. at 25–26); and (4) its “hands-on manager”
allegations, (id. at 26). Second, Defendants argue that Plaintiffs fail to allege motive or
opportunity to commit fraud regarding the seat post issue. (Id. at 28.) Third, Defendants argue
that because Plaintiffs fail to allege scienter with respect to any Individual Defendant, their
scienter allegations against Peloton necessarily fail. (Id. at 28–30.)
Plaintiffs argue that they adequately pleaded scienter. First, they argue that Defendants
had knowledge of the seat post defect because: (1) Defendants McCarthy, Foley, and Cortese had
actual knowledge of defects, (Pls.’ Opp’n 22–24); (2) Defendants received internal reports and
consumer complaints about injuries, safety and quality defects, and rust, (id. at 24–26); (3)
Defendants had a duty to monitor the Bike’s “safety and quality, to assess whether defects or
unreasonable risks of injury existed, and report such risks to [the] CPSC,” (id. at 26); (4)
Defendants attempted to cover up the rust through Project Tinman, (id. at 26–27); (5) Defendants
frequently spoke about the Bike’s safety, (id. at 27–28); and (6) Defendants made misstatements
concerning Peloton’s products and its top priorities, (id. at 28). In support, Plaintiffs argue that
Defendants were on notice of the likelihood and extent of a Bike recall because of the Tread+
recall and nine voluntary recalls of other companies’ stationary bicycles since 1981. (SAC ¶¶
267–77). Second, they argue that the Defendants Foley, Cortese, and Coddington’s “personal
motivation to obscure Peloton’s pervasive defects” to “fend off further reputational and
operational damage” “can “bolster or independently satisfy scienter.” (Id. at 29–30.) In
addition, Plaintiffs allege that scienter should be imputed to Peloton from the Individual
Defendants, Peloton’s senior leadership, and the Executive Product Safety Committee because
Defendants “knew of and actively concealed [the] Bike post, rust, and assembly issues.” (Id. at
28–29.)
When bringing a claim under Section 10(b), a plaintiff must plead facts to support a
finding of scienter. See 15 U.S.C. § 78u-4(b)(2)(A); see also Singh, 918 F.3d at 62 (“Plaintiffs
must allege those facts that give rise to an inference of scienter ‘with particularity.’” (quoting
ATSI Commc’ns, Inc., 493 F.3d at 99)). To survive a Rule 12(b)(6) motion under the PSLRA, a
plaintiff must plead “with particularity facts giving rise to a strong inference that the defendant
acted with the required state of mind.” Sherman, 156 F.4th at 170 (quoting 15 U.S.C. § 78u-
4(b)(2)(A)); Emps.’ Ret. Sys. of Gov’t of the V.I. v. Blanford, 794 F.3d 297, 305 (2d Cir. 2015)
(quoting same); ECA, Loc. 134 IBEW Joint Pension Tr., 553 F.3d at 198 (quoting 15 U.S.C. §
78u-4(b)(1)) (same). When the defendant is a corporate entity, the pleaded facts must create “a
strong inference that someone whose intent could be imputed to the corporation acted with the
requisite scienter.” Mangrove Partners, 2025 WL 1420914, at *5 (quoting Jackson v.
Abernathy, 960 F.3d 94, 98 (2d Cir. 2020)).
Scienter may be established by alleging facts “(1) showing that the defendants had both
motive and opportunity to commit the fraud or (2) constituting strong circumstantial evidence of
conscious misbehavior or recklessness.” Mangrove 2025 WL 1420914, at *4 (quoting ATSI
Commc’ns, Inc., 493 F.3d at 99); New England Carpenters Guar. Annuity & Pension Funds v.
DeCarlo, 122 F.4th 28, 48 (2d Cir. 2023) (same), amended and superseded on reh’g, 122 F.4th
28 (2d Cir. 2024); Set Cap. LLC, 996 F.3d at 78 (“To establish scienter, ‘a complaint may (1)
allege facts that constitute strong circumstantial evidence of conscious misbehavior or
recklessness, or (2) allege facts to show that defendants had both motive and opportunity to
commit fraud.’” (quoting Rombach, 355 F.3d at 176)). When a plaintiff seeks to establish
scienter through evidence of recklessness, she may do so “through a showing of reckless
disregard for the truth, that is, conduct which is highly unreasonable and which represents an
extreme departure from the standards of ordinary care.” SEC v. Halitron, Inc., No. 24-1052,
2025 WL 678776, at *2 (2d Cir. Mar. 3, 2025) (summary order) (quoting SEC v. Obus, 693 F.3d
276, 286 (2d Cir. 2012)); SEC v. Sourlis, 851 F.3d 139, 144 (2d Cir. 2016) (same); see also City
of Pontiac, 752 F.3d at 184 (noting that, in this context, recklessness is defined as “a state of
mind ‘approximating actual intent,’ which can be established by ‘conduct which is highly
unreasonable and which represents an extreme departure from the standards of ordinary care to
the extent that the danger was either known to the defendant or so obvious that the defendant
must have been aware of it.’” (quoting Novak, 216 F.3d at 308, 312)). Circumstances
comprising evidence of recklessness include allegations that a defendant “(1) benefitted in a
concrete and personal way from the purported fraud; (2) engaged in deliberately illegal behavior;
(3) knew facts or had access to information suggesting that their public statements were not
accurate; or (4) failed to check information they had a duty to monitor.” Emps.’ Ret. Sys. of Gov.
of the V.I., 794 F.3d at 306 (quoting ECA, Loc. 134 IBEW Joint Pension Tr., 553 F.3d at 199);
Diaz v. Gap, Inc., No. 22-CV-07371, 2025 WL 1293308, at *16 (E.D.N.Y. Mar. 31, 2025)
(same). Scienter “based on conscious misbehavior . . . requires a showing of deliberate illegal
behavior, a standard met when it is clear that a scheme, viewed broadly, is necessarily going to
injure.” DeCarlo, 122 F.4th at 49 (quoting Gould v. Winstar Commc’ns, Inc., 692 F.3d 148, 158
(2d Cir. 2012)). When assessing whether scienter has been adequately pled, “courts must, as
with any motion to dismiss for failure to plead a claim on which relief can be granted, accept all
factual allegations in the complaint as true.” Tellabs, Inc., 551 U.S. at 322. Thus, “[t]he inquiry
. . . is whether all of the facts alleged, taken collectively, give rise to a strong inference of
scienter, not whether any individual allegation, scrutinized in isolation, meets that standard.” Id.
at 322–23 (emphasis in original).
i. Plaintiffs do not sufficiently allege scienter based on recklessness
Plaintiffs do not adequately allege scienter based on recklessness.17 First, Plaintiffs fail
to allege recklessness because they do not persuasively show Defendants’ reckless disregard for
the truth. See Sourlis, 851 F.3d at 144 (“[S]cienter may be established through a showing of
17 Plaintiffs do not argue that Defendants acted with conscious misbehavior. (See Pls.’
Opp’n 22–28.) Therefore, the Court does not address this factor.
reckless disregard for the truth, that is, conduct which is highly unreasonable and which
represents an extreme departure from the standards of ordinary care.” (alteration in original)
(quoting Obus, 693 F.3d at 286)). Second, Plaintiffs do not allege that Defendants’ conduct was
“highly unreasonable . . . [or] represents an extreme departure from the standards of ordinary
care,” City of Pontiac, 752 F.3d at 184 (quoting Novak, 216 F.3d at 308, 312), because they do
not persuasively allege that Defendants knew that the Bike would be recalled. Plaintiffs fail to
show that Defendants “knew facts or had access to information suggesting that their public
statements were not accurate,” Emps.’ Ret. Sys. of Gov. of the V.I., 794 F.3d at 306 (quoting
ECA, Loc. 134 IBEW Joint Pension Tr., 553 F.3d at 199), because they do not persuasively
allege how Defendants’ knowledge of the seat post defect would have made any of the
challenged statements inaccurate. For example, Plaintiffs do not allege how Defendants’
knowledge of reports of approximately thirty-five seat post issues over multiple years, out of 2.2
million Bikes sold, (see SAC ¶¶ 245, 309), would have made any of the challenged statements or
disclosures inaccurate. Even assuming Plaintiffs are correct that Defendants knew about those
complaints, they do not support Plaintiffs’ argument that those reports would lead to a recall of
every Bike Peloton sold between 2018 and 2013. See Ret. Bd. of Policemen’s Annuity and
Benefit Fund of Chicago ex rel. Policemen’s Annuity & Benefit Fund v. FXCM Inc., 333 F. Supp.
3d 338, 351 (S.D.N.Y. 2018) (dismissing claims for lack of scienter where defendant was aware
of the possible consequences of a risk, but did not perceive it “as a serious possibility at the
time” defendant made disclosures), aff’d, 767 F. App’x 139 (2d Cir. 2019); id. at 351–52
(concluding that the defendant “did not act with scienter when making statements about the”
company’s business risks because he “did not perceive a credible risk”). While providing
additional confidential witnesses testimonies — for example, that Defendant McCarthy had
actual knowledge of complaints regarding the Bike post from customer emails, (SAC ¶¶ 240–
41), and reports, (id. ¶¶ 251–53) — strengthens Plaintiffs’ argument that Defendants were aware
of the seat post defect, it does not support Plaintiffs’ argument that Defendants knew that all the
Bikes would be recalled.18
In addition, Plaintiffs’ argument that Defendants were on notice of the likelihood and
extent of a Bike recall because of the Tread+ recall and nine voluntary recalls of other
companies’ stationary bicycles since 1981, (SAC ¶¶ 267–77), do not support an inference of
scienter. (See Defs.’ Mem. 27.) First, Plaintiffs’ argument that Defendants were on notice of the
likelihood and extent of a Bike recall because they were “intimately familiar with the full
spectrum of expenses” associated with the Tread+ recall, (SAC ¶ 270), is insufficient to support
an inference of scienter because Plaintiffs must do more than allege that Defendants had or
should have had knowledge of the extent of the Bike recall by virtue of their access to inside
information about the Tread+. See Jun v. 500.com Ltd., No. 20-CV-806, 2021 WL 4813192, at
*17 (E.D.N.Y. Aug. 13, 2021), (“[P]laintiffs ‘must do more than allege that the individual
defendants . . . or other officers had or should have had knowledge of certain facts contrary to
their public statements simply by virtue of their high-level positions, their general responsibility
for monitoring [their company’s] activities, and their access to inside information.’” (alteration in
original) (quoting Johnson v. Siemens AG, No. 09-CV-5310, 2011 WL 1304267, at *15
18 Plaintiffs’ other scienter allegations that they have established Defendants’ knowledge
of the seat post issue because (1) Defendants were legally required to review and inform the
CPSC about any Bike defects, (SAC ¶¶ 242–49), (2) the Bike and product safety are at the core
of Peloton’s business, (id. ¶¶ 293–95), and (3) the “hands-on” management style of Defendants
McCarthy, Foley, Cortese, and Woodworth, (id. ¶¶ 296–300), all fail because they depend on
Plaintiffs’ allegation that Defendants knew of or recklessly disregarded the seat post defect.
Even assuming Defendants knew of the seat post issues, Plaintiffs have not adequately alleged
scienter because they do not show that Defendants knew that the Bike recall would occur.
(E.D.N.Y. Mar. 31, 2011), report and recommendation adopted, 2021 WL 4260644 (E.D.N.Y.
Sep. 20, 2021))). Second, Plaintiffs also argue that Defendants were on notice of the likelihood
and extent of a Bike recall because, between 1981 and 2020, nine other bicycle companies had
issued recalls. (SAC ¶ 268.) This is insufficient to support an inference of scienter because
unrelated settlements, investigations, or recalls by other companies do not support an inference
of scienter. See KBC Asset Mgmt. NV v. MetLife, Inc., No. 21-291, 2022 WL 480213, at *2 (2d
Cir. Feb. 17, 2022) (summary order) (concluding that defendant’s previous settlement
concerning a separate issue did not support an inference of scienter); Diabat, 2024 WL 4252502,
at *159 (holding that an SEC investigation into a separate entity could not support an inference
of scienter to another company).
ii. Plaintiffs do not sufficiently allege Defendants’ motive or
opportunity to commit fraud
Plaintiffs do not sufficiently allege that Defendants had a motive or opportunity to
fraudulently conceal the seat post defect. First, Plaintiffs’ argument that Defendants were
motivated to and subsequently obscured safety and quality defects “to fend off further
reputational and operational damage,” (Pls.’ Opp’n 29), following the recall and fallout of
Tread+ are not sufficient to support scienter. See Mangrove, 2025 WL 1420914, at *4 (stating
that a desire to “sustain the appearance of corporate profitability” was insufficient to establish
scienter (quoting DeCarlo, 80 F.4th at 177–78)); Swanson v. Danimer Sci., Inc., No. 23-7674,
2024 WL 4315109, at *3 (2d Cir. Sep. 27, 2024) (summary order) (quoting S. Cherry St., LLC v.
Hennessee Grp. LLC, 573 F.3d 98, 109 (2d Cir. 2009) (same); DeCarlo, 122 F.4th at 49 (“But
the desire to sustain ‘the appearance of corporate profitability’ is not itself the kind of incentive
or motivation that raises an inference of scienter.” (quoting Chill v. Gen. Elec. Co., 101 F.3d 263,
268 (2d Cir. 1996))); In re Turquoise Hill Res. Ltd. Sec. Litig., 625 F. Supp. 3d 164, 242
(S.D.N.Y. 2022) (“The desire to maintain the profitability of the investment and to avoid
governmental and regulatory scrutiny are neither concrete nor personal to the defendants and are
common to all corporate officers.”); In re Lululemon Sec. Litig., 14 F. Supp. 3d at 582 (holding
that “[a]llegations as to the importance of quality and quality control are merely allegations of
what could theoretically motivate a company” and not an indicator of scienter). Second,
Plaintiffs’ allegation that Defendants Foley, Cortese, and Coddington had personal finance
motives related to Peloton’s stock, (Pls.’ Opp’n 29), does not raise a strong inference of scienter.
Plaintiffs undermine their argument about Defendants’ motives by not alleging that Defendants
Foley or Cortese sold Peloton stock during the Class Period. As a result, Plaintiffs’ argument
that Defendants Foley and Cortese’s motivation to conceal the defects to avoid a potential
margin call resulting from a decline in Peloton’s stock is insufficient to establish scienter. See
Meyer, 727 F. Supp. 3d at 395 (holding plaintiffs did not sufficiently allege scienter where
plaintiffs did not allege any executives sold any shares in the company during the class period);
Russo v. Bruce, 777 F. Supp. 2d 505, 518 (S.D.N.Y. 2011) (holding that defendants, who were
“well-placed to take advantage of the fraud they allegedly committed,” but nevertheless “did not
engage in any stock sales during the class period fatally undermines [plaintiff’s] motive
allegations”). Plaintiffs’ allegation that Defendants Cortese and Foley pledged Peloton stock as
collateral for personal loans, (SAC ¶¶ 282–89), is also insufficient to establish scienter. See
Johnson v. NYFIX, Inc., 399 F. Supp. 2d 105, 114 (D. Conn. 2005) (holding that an executive’s
pledge of company stock for a personal loan is insufficient to establish motive because “loans
secured with stock are analogous to stock ownership”). Third, Plaintiffs’ argument that
Defendant Coddington sold seventy-six percent of her Peloton holdings prior to Peloton’s stock
drop, (SAC ¶¶ 290–92), does not adequately allege that Defendant Coddington did so “to take
advantage of an inflated stock price.” See Ark. Pub. Emps. Ret. Sys., 28 F.4th at 356 n.4
(concluding that plaintiffs did not “sufficiently allege[] that the purpose of the [10b5-1] plan was
to take advantage of an inflated stock price” because they failed to “indicat[e] that the plan was
not ‘given or entered into in good faith’ or was ‘part of a plan or scheme to evade the
prohibitions’ of the regulations” (first alteration in original) (first quoting Emps.’ Ret. Sys. of
Gov’t of the V.I., 794 F.3d at 309; and then quoting 17 C.F.R. § 240.10b5-1(c)(1)(ii))); Meyer,
727 F. Supp. 3d at 395 (holding that plaintiffs had not alleged scienter because they failed to
allege that the purpose of defendant’s 10b5-1 plan was to take advantage of an inflated stock
price) (citing Emps.’ Ret. Sys. of Gov’t of the V.I., 794 F.3d at 309)).
Accordingly, Plaintiffs have not adequately pleaded scienter with respect to Defendants.
iii. Plaintiffs do not sufficiently allege control-person claims
Defendants argue that because Plaintiffs have failed to plead a primary violation of Section
10(b), the Court must dismiss the control claim under Section 20(a) against the Individual
Defendants. (Defs.’ Mem. 30.) In addition, Defendants argue that the Section 20(a) claim
should be dismissed because Plaintiffs do not allege any of the Individual Defendants culpably
participated in the alleged securities fraud. (Id.)
Plaintiffs allege that the Individual Defendants are liable under Section 20(a) “[b]y virtue of
their positions of control and authority as senior officers and/or directors” of Peloton, the
Individual Defendants “had the power to influence and control, and did influence and control,
directly or indirectly . . . the contents of public statements during the Class Period” that
“artificially inflated the market price of Peloton securities.” (SAC ¶¶ 337–42.)
To state a claim under Section 20(a), a plaintiff must show: “(1) a primary violation by
the controlled person, (2) control of the primary violator by the defendant, and (3) that the
defendant was, in some meaningful sense, a culpable participant in the controlled person’s
fraud.” In re Shanda Games Ltd. Sec. Litig., 128 F.4th 26, 59 (2d Cir. 2025) (quoting ATSI
Commc’ns, Inc., 493 F.3d at 108); In re Bernard L. Madoff Inv. Sec. LLC, 818 F. App’x 48, 55
(2d Cir. 2020) (same); see also ECA, Loc. 134 IBEW Joint Pension Tr., 553 F.3d at 207 (“In
order to establish a prima facie case of controlling-person liability [under Section 20(a)], a
plaintiff must show a primary violation by the controlled person.” (quoting First Jersey Sec.,
Inc., 101 F.3d at 1472)); Hawes v. Argo Blockchain PLC, No. 23-CV-7305, 2024 WL 4451967,
at *20 (S.D.N.Y. Oct. 9, 2024) (“To establish a prima facie case of control person liability, a
plaintiff must show (1) a primary violation by the controlled person, (2) control of the primary
violator by the defendant, and (3) that the defendant was, in some meaningful sense, a culpable
participant in the controlled person’s fraud.”) (quoting ATSI Commc’ns, Inc., 493 F.3d at 108)).
As discussed above, Plaintiffs have not pleaded a primary violation of Section 10(b) and
have failed to establish a strong inference of scienter as to the Individual Defendants.
Accordingly, the Court grants Defendants’ motion to dismiss Plaintiff’s control claims. See
Teamsters Loc. 445 Freight Div. Pension Fund v. Dynex Cap. Inc., 531 F.3d 190, 195 (2d Cir.
2008) (“When the defendant is a corporate entity,” plaintiff must plead facts that “create a strong
inference that someone whose intent could be imputed to the corporation acted with the requisite
scienter. In most cases, the most straightforward way to raise such an inference for a corporate
defendant will be to plead it for an individual defendant.”); Meyer, 727 F. Supp. 3d at 398
(dismissing claims against a corporation where plaintiffs failed to plead scienter as to any
individual defendant).
III. Conclusion
For the foregoing reasons, the Court grants Defendants’ motion to dismiss the Second
Amended Complaint.
Dated: March 31, 2026
Brooklyn, New York
SO ORDERED:
_________s/MKB_________
MARGO K. BRODIE
United States District Judge