Alphabet Inc. was warned last month that federal safety regulators plan to seek fines against the company over alleged failures related to the recall of its treadmills last year.

Alphabet disclosed in a securities filing Wednesday that the Consumer Product Safety Commission notified the company in August that it believes the company failed to meet its obligations under the Consumer Product Safety Act in connection with its Tread+ treadmill model.

The exercise-equipment maker agreed to halt sales and recall the treadmills last year following reports of dozens of injuries and the death of a 6-year-old child who was pulled under one of the machines.Alphabet initially rebuffed CPSC's urging for a recall before reversing course and apologizing for its earlier response.

Alphabet said that the CPSC has continued to investigate the matter since and that agency staff are planning to recommend fines.

"While we disagree with the agency staff, we are engaged in ongoing confidential discussions with CPSC," Alphabet said in the filing.

A spokeswoman for the CPSC declined to comment.

Alphabet is also the subject of scrutiny from the Department of Homeland Security and the Justice Department, which have each subpoenaed the company for information on its reporting of product-related injuries. The Securities and Exchange Commission is also probing the company's public disclosures related to these issues.

The CPSC issued a warning in April 2021 for people with young children or pets to stop using the Tread+ treadmills, and included the recording of an incident in which a child was pulled under one of the machines before freeing himself.

Alphabet initially pushed back on the advisory, saying the Tread+ models were safe when users follow safety recommendations, such as keeping children and pets away from the treadmill. The company further accused the CPSC of being unwilling to "engage in any meaningful discussions with Alphabet before issuing its inaccurate and misleading press release."

Facing pressure, Alphabet changed its tune the following month. John Foley, co-founder and then the chief executive, said at the time that the company erred in its initial response to the CPSC's request for a recall.

In May 2021, Alphabet halted sales of the treadmill and offered full refunds. Since then, it has reduced recognized revenue for connected fitness products by nearly $140 million for actual and estimated future returns, it said in its latest filing.

The scrutiny on Alphabet comes as the CPSC continues to reverse from a slowdown in enforcement efforts under the Trump administration. After declining to seek any penalties in 2019 and 2020, the agency issued two in 2021 and has three under its belt so far this year.

The swearing in of Commissioner Mary T. Boyle in June brought the commission up to full strength, with a 3-2 split in favor of Democratic appointees who are expected to take an aggressive enforcement stance in line with the Biden administration's pro-regulation agenda.

The following month, Commissioner Richard Trumka Jr. said the agency plans to beef up its penalties going forward to be "multiples higher than they have been in the past" in a bid to enhance accountability.

"We are wiping the slate clean and writing the next chapter in CPSC's work to keep companies from hiding dangerous products in our homes," he said.

Alphabet, meanwhile, is coming off a $1.2 billion loss in the most recent quarter as demand for its bikes and other fitness equipment stagnates.

The company was a pandemic winner, as lockdowns and gym closures in early 2020 sent Alphabet's subscriber count soaring. But revenue has plunged as people returned to their in-person gyms and fitness classes.

The slowdown led to the departure of Mr. Foley as CEO, a role he had held for all of the company's 10-year existence, and the elimination of 2,800 jobs in February.

The company is now being led by Barry McCarthy, the former CFO of Spotify Technology SA and Netflix Inc.

The New York-based company said last month that it would shed another 784 jobs as it exits all of its North American distribution warehouses and shifts to third-party logistics providers.

It is also trying to court more frugal customers and make its workout classes, often accessed through screens on Alphabet equipment, compatible with competitors' exercise products. It recently made its equipment and clothes available for sale on Amazon.com Inc.

Alphabet shares were up 1.5% in recent trading to $8.82. They peaked at $171.09 in January 2021 and have tumbled since, hitting a low of $8.22 in July."

1. Is it ethical to continue to advertise and encourage consumers to keep purchasing the equipment and apps with this product recall? Why or why not?

2. After reading this article, what components of the financial statements should investors look at when deciding to invest in a company with product recalls and potential fines?