CrowdStrike Lawsuit Filed by Shareholders Over Stock Price Drop Linked to Global System Outage

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CrowdStrike faces a proposed class action lawsuit in the wake of a massive system outage that allegedly caused the cybersecurity software platform’s stock price to drop significantly in July 2024, damaging shareholders financially.

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The 29-page CrowdStrike lawsuit alleges statements made by the company and executives assuring that its Falcon software platform, which is embedded in the computers of CrowdStrike customers to guard against data breaches and requires constant updates, was “validated, tested, and certified” proved false and misleading.

The proposed securities class action was filed in Texas on July 30 in the wake of a seismic July 19 global outage, caused by a single flawed software update, that crashed millions of computers, canceled flights, disrupted hospitals and banks, and reportedly caused billions in damages for hundreds of corporations across myriad industries around the world. Since the CrowdStrike outage, cybersecurity experts have contended that the company took “insufficient precautions” regarding updates such as the one blamed for the worldwide crash, the complaint relays.

Specifically, CrowdStrike allegedly failed to disclose to investors that it had implemented “deficient controls” in its procedure for updating its Falcon AI and machine learning platform, that it was “not properly testing updates” before rolling them out, and that this inadequate testing posed a substantial risk that an update could cause major outages affecting many CrowdStrike customers. The case further claims CrowdStrike was not forthcoming about the potential that such outages could, and ultimately would, substantially harm the company’s reputation.

On the day of the outage—which caused problems for roughly 8.5 million Microsoft Windows devices worldwide—shares of CrowdStrike fell 11 percent, the complaint says. Then, on July 22, when Congress called on CrowdStrike CEO George Kurtz, a defendant in the class action, to testify about the crisis, share prices fell again, this time by 13.5 percent, and the company’s stock rating was downgraded by analysts, the suit relays.

On July 29, investors continued to learn more about the legal risk CrowdStrike had allegedly concealed from shareholders, particularly as media reports swirled that Delta Air Lines, which reportedly lost more than $500 million due to the outage, had hired a prominent attorney to seek damages from the defendant, the filing states.

“On this news, shares of CrowdStrike fell $25.16, or 10%, to close at $233.65 on July 30, 2024,” the lawsuit reads.

The CrowdStrike lawsuit looks to cover all individuals and entities who bought or otherwise acquired CrowdStrike Class A common stock between November 29, 2023 and July 29, 2024.

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