CrowdStrike Faces Shareholder Lawsuit Over Major Software Outage, According to Reuters

By Jonathan Stempel

CrowdStrike has come under legal scrutiny as shareholders have filed a lawsuit against the cybersecurity firm, alleging that it misled them regarding the adequacy of its software testing, which they claim contributed to a significant global outage on July 19 that affected over 8 million computers.

The proposed class action, filed on Tuesday in a federal court in Austin, Texas, accuses CrowdStrike of providing false and misleading assurances about its technology. This was brought to light after a problematic software update led to major disruptions for various sectors, including airlines, banks, hospitals, and emergency services worldwide.

Following the incident, CrowdStrike’s stock plummeted 32% over the next 12 days, resulting in a loss of approximately $25 billion in market value. The ramifications of the outage drew further attention as CEO George Kurtz was summoned to testify before Congress, and Delta Air Lines reportedly sought legal recourse with prominent attorney David Boies.

The lawsuit references statements made by Kurtz during a March conference call, where he described CrowdStrike’s software as "validated, tested and certified."

In a statement, CrowdStrike expressed confidence in its defense, labeling the lawsuit as without merit. Both Kurtz and CFO Burt Podbere are named as defendants in the case.

The lawsuit, spearheaded by the Plymouth County Retirement Association of Massachusetts, seeks unspecified damages for shareholders of Class A shares held between November 29, 2023, and July 29, 2024.

Such lawsuits are not uncommon when companies experience sudden adverse events that impact stock prices, and CrowdStrike may face additional legal challenges in the future.

Delta’s CEO recently disclosed that the outage incurred costs of $500 million for the airline, which included lost revenue and expenses for compensating impacted travelers with hotel accommodations.

As of Wednesday, CrowdStrike’s shares closed down $1.69 at $231.96, a sharp decline from the $343.05 closing price just prior to the outage.

The case is officially registered as Plymouth County Retirement Association v. CrowdStrike Inc et al, in the U.S. District Court for the Western District of Texas.