CrowdStrike is sued by shareholders over huge software outage

By Jonathan Stempel

(Reuters) – CrowdStrike has been sued by shareholders who said the cybersecurity company defrauded them by concealing how its inadequate software testing could cause the July 19 global outage that crashed more than 8 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% over the next 12 days, wiping out $25 billion of market value, as the outage’s effects became known, Chief Executive George Kurtz was called to testify to the US 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, 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 charged.

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.

Shareholders often sue companies after unexpected negative news causes stock prices to fall, and CrowdStrike could face more lawsuits.

Delta Chief Executive Ed Bastian told CNBC on Wednesday that the outage cost of his airline was $500 million, including lost revenue and compensation and hotels for stranded fliers.

CrowdStrike shares closed on Wednesday down $1.69 at $231.96. They closed at $343.05 on the day before the outage.

The case is Plymouth County Retirement Association v CrowdStrike Inc et al, US District Court, Western District of Texas, No. 24-00857.

(Reporting by Jonathan Stempel in New York; Editing by Sandra Maler)