Southern District Of New York Grants Motion To Dismiss Securities Class Action Against Connected Fitness Company On Remand

On August 27, 2026, Judge Andrew L. Carter, Jr. of the United States District Court for the Southern District of New York granted a motion to dismiss a putative securities fraud class action against a fitness company (the “Company”), its former CEO, and two other officers (collectively, “Defendants”), alleging violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5. Robeco Capital Growth Funds SICAV – Robeco Global Consumer Trends v. Peloton Interactive, Inc., et al., No. 1:21-cv-09582 (S.D.N.Y. Aug. 27, 2026). The Court held that Plaintiffs failed to allege scienter because the more compelling inference from the pleaded facts was that the Company genuinely believed building inventory was important to meet anticipated demand and that any alleged deficiencies in the disclosures were the inadvertent result of the difficulty projecting future supply and demand during the COVID-19 pandemic. 

The case was before the Court on remand from the Second Circuit, which had vacated the district court’s prior dismissal in part and narrowed the class period to August 27, 2021 through January 19, 2022. We previously covered the Second Circuit’s ruling here and the district court’s here. The remaining alleged misrepresentations were the former CEO’s characterization of the Company’s $400 Bike price cut as an “absolutely offensive” business strategy and warnings of risks regarding “excess inventory levels” in the Company’s Form 10-K and Form 10-Q. Plaintiffs alleged that Defendants knew or were reckless in not knowing the true purpose of the price cut—that it was a defensive response to excess inventory—and that the individual Defendants had access to reports showing the Company was “drowning in inventory.”

On the issue of scienter, the Court first found that plaintiffs failed to establish motive. The majority of allegedly suspicious stock sales identified in the complaint occurred before the narrowed class period, and the few remaining sales during the class period comprised under 5% of total sales, were made pursuant to pre-existing 10b5-1 plans, and were relatively inconsequential in amount. The individual Defendants terminated their trading plans more than six weeks before the alleged truth was revealed and retained stock that subsequently declined in value, which the Court held suggested they did not “rush to cash out.”

As to circumstantial evidence of conscious misbehavior or recklessness, the Court found that plaintiffs’ allegations failed to establish highly unreasonable conduct. Critically, Defendants were not accused of misrepresenting inventory levels or sales but instead of not acknowledging that inventory levels were “excessive” and triggered the price cut. Whether inventory was “excessive” hinged on anticipated future holiday demand that had not yet occurred. The Court held it was unlikely that Defendants believed they could deceive investors given their contemporaneous detailed and accurate disclosures regarding inventory levels, demand expectations, and pandemic-related forecasting challenges, which allowed investors to reach their own judgments. The confidential witness allegations also failed to support an inference of scienter because they did not collectively support the inference that any individual Defendant believed the Company had excess inventory in August 2021 or reduced the Bike’s price for that reason. Considering the allegations holistically, the Court held that the more compelling inference was that the Company genuinely believed building inventory was important to meet increased demand, particularly in light of the difficulty projecting supply and demand during the pandemic.

Because plaintiffs failed to adequately plead scienter, the Court declined to reach the issues of loss causation or lead plaintiff standing. The Section 20(a) control-person claims likewise failed for want of an adequately pled primary violation. The Court declined to grant leave to amend but permitted plaintiffs to file a motion for leave to file a third amended complaint by September 28, 2026.