The U.S. Consumer Product Safety Commission (CPSC) has levied one of its largest fines ever — $19 million — against Peloton Interactive Inc. as part of a settlement related to Peloton’s Tread+ treadmills, CPSC announced on Jan. 5.
The settlement resolves CPSC’s charges that Peloton knowingly failed to immediately report to CPSC, as required by law, that its Tread+ treadmill contained a defect that could create a substantial product hazard and created an unreasonable risk of serious injury to consumers. The civil penalty also settles charges that Peloton knowingly distributed recalled treadmills in violation of the Consumer Product Safety Act (CPSA).
“This is larger than the maximum civil penalty allowed by law for a single violation because Peloton committed two distinct violations by both failing to report incidents and selling recalled units,” CPSC Commissioner Richard Trumka said in a statement. “Peloton’s conduct called for one of the largest civil penalties in our history. Evidence indicates that for years, Peloton knew from consumer reports that its treadmills could grab and pull kids and objects under the rear of the Tread+ treadmill, allowing for serious or fatal injuries. As incidents mounted, the company kept CPSC in the dark by failing to report them, preventing our agency from protecting the public.”
Beginning in December 2018 and continuing into 2019, Peloton received reports of incidents associated with pull under and entrapment in the rear of the treadmills, including reports of injuries, but did not immediately report the injuries to the CPSC, according to the agency.
By the time Peloton filed a report with the CPSC, more than 150 incidents of people, pets, and/or objects being pulled under the rear of the Tread+ treadmill had been reported, including the death of a child and 13 injuries, including broken bones, lacerations, abrasions and friction burns.
Peloton and the CPSC jointly announced the recall of the Tread+ treadmill on May 5, 2021, although the CPSC had wanted a recall in April, and Peloton had refused.
The CPSC also charged that after the public announcement of the recall, Peloton knowingly distributed in commerce 38 Tread+ recalled treadmills using Peloton personnel and through third-party delivery firms.
In addition to the $19,065,000 civil penalty, the settlement agreement requires Peloton to maintain an enhanced compliance program and system of internal controls and procedures designed to ensure compliance with the CPSA. Peloton has also agreed to file, for a period of five years, annual reports regarding its compliance program and system of internal controls.
By a 4-0 vote, the CPSC provisionally accepted the settlement agreement, subject to public comment.
In addition to the investigation by the CPSC, Peloton is also under investigation by the Department of Justice and the Department of Homeland Security related to its statutory obligations under the Consumer Product Safety Act. The Securities and Exchange Commission is investigating the company’s handling of communications with the public related to the Tread+ recall.
“We are cooperating fully with each of these investigations, and at this time, we are unable to predict the eventual scope, duration or final outcome of the investigations,” Peloton said in its 10k tax form in September 2022.
In addition, 12 current and former Peloton executives are being sued for allegedly engaging in insider trading. The lawsuit alleges the executives sold $5000 million worth of stock prior to revealing the safety issues to shareholders and the public.
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