CrowdStrike Sued By Shareholders After Huge IT Outage

Texas-based cybersecurity firm CrowdStrike is now facing  the first legal repercussion for its role in the world’s largest ever IT outage on 19 July.

Reuters reported that CrowdStrike has been sued by shareholders, who allege the firm defrauded them by concealing how its inadequate software testing could cause the huge outage that crashed millions of Microsoft Windows computers and caused chaos around the world.

CrowdStrike’s CEO George Kurtz has apologised on multiple occasions when it became clear that a faulty content configuration update for CrowdStrike’s Falcon sensor tool had plunged an estimated 8.5 million Windows computers into a ‘Bue Screen Of Death’ reboot loop.

Shareholder lawsuit

Now Reuters has reported that a proposed class action was filed on Tuesday night in the Austin, Texas federal court.

The CrowdStrike shareholders reportedly said they learned that CrowdStrike’s assurances about its technology were materially false and misleading when a flawed software update disrupted airlines, banks, hospitals, emergency lines and business operations around the world.

They said CrowdStrike’s share price fell 32 percent over the next 12 days, wiping out $25 billion of market value, as the outage’s effects became known.

CEO George Kurtz has been called to testify to the US Congress, while Delta Air Lines facing a cost of up to $500 million due to nearly 7,000 cancelled flights, has reportedly hired prominent attorney David Boies to seek damages.

Boies is best known for representing the US government in its landmark antitrust case against Microsoft, and for helping win a decision that overturned California’s ban on gay marriage.

Meanwhile the CrowdStrike shareholder complaint reportedly cites statements including from a 5 March conference call where Kurtz characterised CrowdStrike’s software as “validated, tested and certified.”

CrowdStrike response

In a statement on Wednesday, Austin-based CrowdStrike was quoted by Reuters with the following statement: “We believe this case lacks merit and we will vigorously defend the company.”

CEO Kurtz and Chief Financial Officer Burt Podbere are also defendants.

The lawsuit led by the Plymouth County Retirement Association of Plymouth, Massachusetts, seeks unspecified damages for holders of CrowdStrike Class A shares between 29 November 2023 and 29 July 2024.

CrowdStrike’s share price, which had more than doubled in 2023, has fallen over 24 percent since the outage, leading to a loss of over $25 billion in market valuation.