Settlement of multiple lawsuits against Peloton, requiring corporate governance enhancements, granted preliminary approval

The U.S. District Court for the Southern District of New York has granted preliminary approval for the settlement of several lawsuits filed against Peloton. These lawsuits were derivative lawsuits – meaning they were filed on behalf of the company against directors or officers.

In these cases, the lawsuits were related to statements, potential insider trading, and allegations around how the Peloton Tread+ recall was handled in 2021.

This settlement was first negotiated last year, but has now been given preliminary approval by the courts. As we shared at the time:

The three lawsuits alleged that Peloton’s top leadership was involved with insider trading, by downplaying the extent of the safety concerns with the Tread+ while simultaneously selling almost $500 million worth of stock with the knowledge that a product recall was likely.

Two key requirements of the agreement that was approved are that:

• Peloton’s insurance company must pay $1,750,000 in attorney’s fees & expenses for the plaintiffs
• Peloton will implement numerous corporate governance enhancement

Since this was not a class action lawsuit, there is no money being paid to individual shareholders as a result of this lawsuit or settlement.

Some of those “corporate governance enhancements”, which are presumably to keep Peloton from finding themselves in a similar situation again in the future, include:

• The appointment of a new independent director [which took place in February 2022]
• The amendment of Peloton’s Audit Committee Charter to, among other things, state that the Committee will: (i) review with management Peloton’s risk exposures, including the safety of the Company’s products and services, customers, and employees, (ii) meet six times per year, (iii) meet in separate executive sessions with certain management functions, and (iv) receive and review an annual report of all trades of Peloton stock made by Section 16 officers during the prior year
• Maintenance of a management-level Executive Product Safety Committee, which shall: (i) be chaired or co-chaired by the Company’s Vice President, Head of Safety, Ethics and Compliance (or functional equivalent), (ii) be responsible for new and modified product safety standards and reviews throughout the product development lifecycle (or as part of product modifications), including identifying potential risks and appropriate action to mitigate safety risks to the extent possible, (iii) evaluate and oversee the safety of new products, parts, apparel services, and features in development before they are sold or released, and (iv) have its Chair or Co-Chair, or their designee, meet with the Audit Committee at least four times per year to discuss product safety, including potential safety measures and risk mitigation, as appropriate
• Amendment of the Enterprise Risk Management Committee Charter, including to provide that the Committee will periodically review the Company’s ethics, compliance, and enterprise-risk management policies and procedures, as appropriate, and meet at least three times per year
• Amendment of the Disclosure Committee Charter to require: (i) meetings five times per year, (ii) the review of Peloton’s annual and quarterly financial reports and proxy statement to ensure that those reports and statements are accurate, complete, timely, and fairly represent the Company’s financial condition, (iii) that a senior representative of the Disclosure Committee will discuss the effectiveness of the Company’s disclosure controls over financial reporting with the Audit Committee on an annual basis, and (iv) that a representative of the Disclosure Committee attend Audit Committee meetings quarterly
• Maintenance of a VP, Head of Safety, Ethics, and Compliance (or functional equivalent) position, to, among other things: (i) oversee and administer corporate governance policies related to product safety, (ii) meet with Peloton’s Chief Legal Officer (or functional equivalent) at least quarterly to discuss litigation and compliance issues related to product safety, and to evaluate and define goals of Peloton’s compliance program in light of trends and changes in laws, (iii) serve on the Disclosure Committee, (iv) act as the compliance liaison between management and the Executive Product Safety Committee, and (v) report to the Board annually and Audit Committee quarterly about material compliance and ethics topics
• Employee training regarding financial statements and/or GAAP to employees involved in preparing the Company’s financial statements
• Updates to Peloton’s whistleblower reporting policies and procedures

You can read the entire notice from Peloton here.

Peloton shareholders have until May 30th, 2025 to object to the settlement, prior to a Final Settlement Hearing which is taking place on June 13th, 2025.

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