*

US appeals court revives claims over inventory levels

*

Shareholders say Peloton inflated stock price

*

Dissenting judge expects eventual dismissal

By Jonathan Stempel

NEW YORK, Aug 27 (Reuters) - Peloton Interactive ( PTON )

must face a lawsuit claiming it defrauded shareholders

by masking excess inventory of its home exercise equipment as

the worst of the COVID-19 pandemic passed, a divided federal

appeals court ruled on Wednesday.

Reversing a lower court ruling, the 2nd U.S. Circuit Court

of Appeals in Manhattan said shareholders can try to prove that

the maker of stationary bikes and treadmills made three false

and misleading statements that inflated its stock price.

The statements included former Chief Executive John Foley's

claim in an August 26, 2021 earnings call that a $400 bike price

cut was an "absolutely offensive" strategy to boost sales,

rather than a defensive strategy to counteract weakness.

They also included two warnings in Peloton regulatory

filings of hypothetical risks regarding "excess inventory

levels."

Circuit Judge Steven Menashi said shareholders offered

evidence that the price cut was actually a defensive move to

clear out three months of inventory, and that the risks of

excess inventory had already materialized.

"In sum, we conclude that the plaintiffs have plausibly

alleged actionable misstatements or omissions," Menashi wrote

for a 2-1 majority.

Shareholders sued after the stock price of New York-based

Peloton fell more than 80% from February 5, 2021 to January 19,

2022, a period when vaccines became widely available and gyms

began reopening.

The decline included a 35% one-day plunge on November 5,

2021, after Peloton reduced its full-year earnings forecast by

as much as $1 billion and said 91% of inventory was unsold.

Peloton's stock price has fallen approximately 95% since

early 2021.

Wednesday's decision upheld the August 2024 dismissal by

U.S. District Judge Andrew Carter in Manhattan of claims based

on six other Peloton statements, and returned the case to him.

Circuit Judge Jon Newman dissented, saying Foley's and

Peloton's statements were not false and misleading in light of

other information available to investors.

He also expressed a "high degree of confidence" the lawsuit

will be dismissed because shareholders won't prove Peloton

intended to defraud them.

Peloton did not immediately respond to requests for comment.

Lawyers for the shareholders did not immediately respond to

similar requests.

On August 7, Peloton posted a surprise fourth-quarter profit

and forecast fiscal 2026 revenue above analyst forecasts, while

announcing it would shed 6% of its workforce to cut costs.

The case is City of Hialeah Employees' Retirement System et

al v Peloton Interactive Inc ( PTON ) et al, 2nd U.S. Circuit Court of

Appeals, No. 24-2803.