CrowdStrike has been sued by shareholders who said the cybersecurity company defrauded them by concealing how its inadequate software testing could cause the global outage on July 19 that crashed more than eight million computers.
In a proposed class action filed on Tuesday night in the Austin, Texas, federal court, shareholders said they learned that CrowdStrike’s assurances about its technology were materially false and misleading when a flawed software update disrupted airlines, banks, hospitals and emergency lines around the world.
They said CrowdStrike’s share price fell 32 per cent over the next 12 days, wiping out $25 billion US of market value. As the outage’s effects became known, chief executive George Kurtz was called to testify before U.S. Congress, and Delta Air Lines reportedly hired prominent lawyer David Boies to seek damages.
The complaint cites statements, including from a March 5 conference call where Kurtz characterized CrowdStrike’s software as “validated, tested and certified.”
In a statement on Wednesday, a spokesperson for Austin-based CrowdStrike said, “We believe this case lacks merit and we will vigorously defend the company.” Kurtz and chief financial officer Burt Podbere are also defendants.
The lawsuit led by the Plymouth County Retirement Association of Plymouth, Mass., seeks unspecified damages for holders of CrowdStrike Class A shares between Nov. 29, 2023 and July 29, 2024.
Shareholders often sue companies after unexpected negative news causes stock prices to fall, and CrowdStrike could face more lawsuits. Whether the company can survive an onslaught of them is a different story, according to Richard Powers, an associate professor at the University of Toronto’s Rotman School of Management.
“The question now is, if these lawsuits continue to mount, will CrowdStrike have the financial health to withstand them? Or will they be forced into bankruptcy,” which would also come at the detriment of shareholders, Powers said.
Shareholders who’ve sued the company are looking to recover the loss that they’ve taken, he added.
“They’ve lost billions of dollars as a result of this. And this is only the beginning. I’m sure that other parties will join the class-action lawsuit.”
A Canada-wide class action against CrowdStrike has been proposed by the Consumer Law Group, a law firm with offices in Montreal and Ottawa.
Meanwhile, Delta has hired a lawyer to seek potential damages against CrowdStrike. The airline’s chief executive Ed Bastian told CNBC on Wednesday that the outage cost his airline $500 million, including lost revenue and compensation and hotels for stranded fliers.
CrowdStrike shares closed at $231.96 on Wednesday. They closed at $343.05 on the day before the outage.
