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 significant drop in share price and overall market value.
On July 19, an outage allegedly caused by a software update affected approximately 8.5 million computers worldwide. Various organizations, including airlines, banks, retail and media outlets, and hospitals lost access to their computer systems. CrowdStrike has acknowledged that there was an undetected error in an update for its security software that provides new instructions for identifying and stopping novel threats.
According to the complaint filed on July 30 in the United States District Court in Texas, CrowdStrike’s CEO George Kurtz described the Falcon software as “validated, tested and certified” during a conference call on March 5. However, the plaintiffs argue that these statements were false and misleading because CrowdStrike allegedly failed to adequately test and update its Falcon software before releasing it to customers.
The complaint alleges that CrowdStrike implemented deficient controls in its procedure for updating Falcon and did not properly test updates before rolling them out to customers. The company did not disclose that this inadequate testing posed a substantial risk of major outages for many of its customers.
Following the outage, CrowdStrike’s share price dropped by 32% over the next 12 days, resulting in a loss of $25 billion of market value.
The lawsuit seeks unspecified damages for holders of CrowdStrike Class A shares between November 29th, 2023 and July 29th, 2024. It also claims that Delta Air Lines’ decision to hire an attorney to seek damages from CrowdStrike contributed to the decline in share price. Additionally, Kurtz being called to testify before Congress regarding the incident is cited as another factor affecting stock performance.
CrowdStrike has stated that it believes this case lacks merit and will vigorously defend itself against these allegations. CEO George Kurtz emphasized that they quickly identified and resolved the issue during the time of the outage while continuously updating their systems against potential adversaries.
The Epoch Times has reached out to CrowdStrike for further comment on this class action lawsuit.
