CrowdStrike is facing a lawsuit from shareholders who claim the company misled them about the reliability of its software, leading to a significant global outage on July 19 that affected more than eight million computers.
The proposed class action was filed late Tuesday in the Austin, Texas federal court, according to Reuters.
The lawsuit alleges that CrowdStrike’s assurances about its technology were materially false and misleading, as evidenced by a flawed software update that caused widespread disruptions to airlines, banks, hospitals, and emergency services globally.
Shareholders claim that these issues led to a 32% drop in CrowdStrike’s share price over 12 days, erasing $25 billion in market value.
The fallout included Chief Executive George Kurtz being summoned to testify before the U.S. Congress, and Delta Air Lines reportedly hiring prominent attorney David Boies to pursue damages.
Key statements cited in the complaint include Kurtz’s comments from a March 5 conference call, where he described CrowdStrike’s software as “validated, tested and certified.”
The lawsuit is led by the Plymouth County Retirement Association of Plymouth, Massachusetts, and seeks unspecified damages for holders of CrowdStrike Class A shares between November 29, 2023, and July 29, 2024.
Both Kurtz and Chief Financial Officer Burt Podbere are named as defendants in the lawsuit.
CrowdStrike, headquartered in Austin, responded on Wednesday by saying, “We believe this case lacks merit and we will vigorously defend the company.”
The July outage has had significant financial repercussions, with Delta Air Lines CEO Ed Bastian saying that the incident cost the airline $500 million in lost revenue and compensation for affected passengers.
A report by cyber insurer Parametrix said the average loss per affected company was approximately $43.6 million, with the healthcare sector suffering the most, incurring losses of around $1.9 billion. Airlines were also significantly impacted, losing about $860 million.
The report said the total insured losses among the Fortune 500 companies ranged between $540 million and $1.08 billion.
CrowdStrike shares, which closed at $343.05 the day before the outage, have since dropped to $231.96.
Shareholders frequently sue companies following unexpected negative events that cause stock prices to plummet. This lawsuit may be the first of many that CrowdStrike could face as the full impact of the outage becomes clearer.
The case is titled Plymouth County Retirement Association v. CrowdStrike Inc et al, U.S. District Court, Western District of Texas, No. 24-00857.
