A group of Peloton executives have been hit with an insider trading lawsuit over claims they sold $500m (£416m) of shares while hiding treadmill safety problems that killed a child.
An investor has filed a lawsuit accusing co-founder John Foley of selling 600,000 shares worth $77m shortly before information about the safety flaws was released.
Nine other members of Peloton’s board and senior management also offloaded stock at around the same time, with the total amount sold standing at around $495m.
The lawsuit alleges that bosses knew about critical safety issues with the company’s treadmills but “utterly abdicated their fiduciary duties” in a “haste to dump stock”.
Peloton last year recalled hundreds of thousands of its Tread and Tread+ machines after a six-year-old boy was killed and dozens of others were injured.
US regulators issued a warning over the treadmills following multiple reports of people being trapped and pulled under the back of the machines.
But the lawsuit accuses Mr Foley and other bosses of being slow to disclose the problems while repeatedly insisting that the machines were safe and refusing to issue a recall.
According to the complaint, the first tranche of share sales worth around $100m came in February 2021 – just a week after a three-year-old boy suffered a significant brain injury when he was trapped under a Peloton Tread+.
The lawsuit, filed in Delaware’s Chancery Court, stated: “As Peloton’s former CEO and chairman, Foley would have direct and unfettered access to incident reports.”
It added that the other executives “were undoubtedly aware in real time of the injuries described herein”.
Peloton did not publicly disclose the issues for another month, at which point it resisted pleas from the US Consumer Product Safety Commission to recall the product and issue a safety warning.
It was not until May that Peloton recalled the treadmills, with Mr Foley admitting he had “made a mistake” in not acting sooner.
Peloton, which enjoyed a boom in sales during the pandemic, has since seen its share price collapse from a high of nearly $163 in December 2020 to just $10 now.
Alongside the investor lawsuit, the company is also facing investigations by the Justice Department and regulators, as well as proposed class action lawsuits and personal injury claims.
Peloton has been contacted for comment.