There are generally four categories of securities class actions (SCAs) that resulted from the COVID-19 pandemic:

• Suits against companies that experienced an on-site outbreak;
  
• Suits against companies that sought to profit from the pandemic;
  
• Suits against companies that experienced disruption to their operations and financial performance due to the pandemic; and
  
• Suits against companies whose performance soared during the pandemic but now face challenges.
  

A fitness company that manufactures and produces stationary bikes and treadmills is facing a SCA that falls into the fourth category.

The pandemic resulted in an exponential increase in demand for the manufacturer’s products. However, the company experienced supply chain issues and substantial backlogs in deliveries. By early 2021, demand began to wane as COVID-19 vaccines became more widely accessible and brick and mortar gyms began reopening. The plaintiff alleges that the defendants hid the true nature of the declining demand from investors and publicly stressed that its supply chain investments were necessary and appropriate given sustained demand for its products. The complaint further alleged that the individual defendants sold company stock at inflated prices due to the declining demand.

In granting the defendants’ motion to dismiss, the court noted that many of the alleged false statements pronounced by the defendants were accompanied by specific warnings detailing “how the COVID-19 pandemic could potentially affect the company’s business, which unlike many other businesses, viewed the lessening of restrictions as a material risk rather than as an opportunity for growth.”¹ The court also determined that other alleged improper statements were unactionable corporate puffery, and that the plaintiff failed to plead falsity regarding any of the challenged statements.

The court dismissed the action but left open the possibility for the plaintiff to file an amended complaint. This and other COVID-19 related SCAs demonstrate that specific attention to cautionary language in public filings and satisfying the safe harbor provision of the Private Securities Litigation Reform Act may prove helpful in defeating securities fraud claims. Other related SCA claims have been filed recently and Aon will continue to monitor the latest developments.

¹ Robeco Cap. Growth Funds Sicav â Robeco Glob. Consumer Trends v. Peloton Interactive, Inc. 2023 U.S. Dist. LEXIS 55626, *38 (USDC SDNY 2023)