CrowdStrike Hit With Class Action Lawsuit From Shareholders Over Software Outage

A departure board shows canceled flights in the McNamara terminal at the Detroit Metropolitan Wayne County Airport, Mich., on July 20, 2024. Joe Raedle/Getty Images

Austin-based Cybersecurity firm CrowdStrike is facing a class action lawsuit from shareholders who claim the company defrauded them by concealing how its inadequate software testing could cause a global computer outage, resulting in a big hit to the share price and overall market value.

On July 19, an outage, allegedly sparked by a software update, affected about 8.5 million computers around the world. Airlines, banks, retail and media outlets, and hospitals were among organizations that lost access to computer systems. CrowdStrike has said there was an undetected error in an update for its security software that provides new instructions for the program on how to spot and stop novel threats.

According to the July 30 complaint filed in the United States District Court in the Western District of Texas, CrowdStrike’s Chief Executive George Kurtz characterized CrowdStrike’s Falcon software as “validated, tested and certified” during a conference call on March 5.

The plaintiffs say these statements were “false and misleading” because CrowdStrike allegedly failed to properly test and update its Falcon software before rolling it out to customers.

The complaint alleges CrowdStrike “instituted deficient controls in its procedure for updating Falcon, and was not properly testing updates to Falcon before rolling them out to customers.” CrowdStrike did not disclose that “this inadequate software testing created a substantial risk that an update to Falcon could cause major outages for a significant number of the Company’s customers.”

“Such outages could pose, and in fact ultimately created, substantial reputational harm and legal risk to CrowdStrike,” the complaint alleges. “As a result of these materially false and misleading statements and omissions, CrowdStrike stock traded at artificially high prices during the Class Period.”

Following the outage, the legal complaint says CrowdStrike’s share price fell 32 percent over the next 12 days, wiping out $25 billion of market value.

As of July 31, CrowdStrike shares are worth $231.96. They closed at $343.05 on the day before the outage.

The lawsuit, led by the Plymouth County Retirement Association of Plymouth, Massachusetts, seeks unspecified damages for holders of CrowdStrike Class A shares between Nov. 29, 2023, and July 29, 2024. The class action also alleges that Delta Air Lines’ hiring of an attorney to represent them in seeking damages from the company, along with Kurtz being called to testify before the U.S. Congress over the incident, caused CrowdStrike’s share price to fall.

CrowdStrike said in a statement provided to media outlets: “We believe this case lacks merit and we will vigorously defend the company.”

Speaking at the time of the outage, CrowdStrike chief executive George Kurtz said: “We identified this very quickly and remediated the issue.”

He added that its systems were constantly being updated to ward off “adversaries that are out there”.

The Epoch Times has contacted CrowdStrike for further comment on the class action lawsuit.

Tom Ozimek and Reuters contributed to this report.