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Cybersecurity firm CrowdStrike is being sued by investors who claim the company made false statements ahead of a software update that crashed Windows-using computers worldwide last month.
The class action suit was filed by the Plymouth County Retirement Association in the U.S. District Court for the Western District of Texas Tuesday, and it applies to those who “acquired CrowdStrike Class A common stock between November 29, 2023 and July 29, 2024.”
The defendants are CrowdStrike, its CEO George Kurtz and CFO Burt Podbere.
The plaintiffs contend that the company violated federal securities laws and alleges that CrowdStrike did not tell investors that it had “instituted deficient controls in its procedure for updating Falcon and was not properly testing updates,” and that “this inadequate software testing created a substantial risk that an update to Falcon could cause major outages.”
As such, the plaintiffs argue, CrowdStrike stock was traded at an artificially high price before the July 19 software update that caused Windows computers worldwide to suffer the blue screen of death, rendering them unusable until the problem was fixed.
“We believe this case lacks merit and we will vigorously defend the company,” CrowdStrike told Austin, Texas, NBC affiliate KXAN-TV. CrowdStrike is based in Austin.
An error in CrowdStrike’s content validation system caused a bug within the Falcon update to be missed, which was not caught before the update was automatically sent out by another company system, CrowdStrike explained in a preliminary review of the incident. The issue was finally resolved as of 5 p.m. CDT Monday, CrowdStrike told the BBC.
The outage led CrowdStrike stock to drop 11% in price on July 19, according to the complaint.
The stock dropped another 13.5% on July 22 when Mr. Kurtz was called to testify before Congress and the company’s rating was downgraded, and dropped another 10% Tuesday after news came out that Delta Air Lines, which canceled thousands of flights due to the outage, was also seeking damages.
PCRA is seeking unspecified damages, legal costs, and for the matter to be resolved in a jury trial.
Delta Air Lines, which had a crew-tracking tool paralyzed by the Windows shutdown and canceled flights for days as a result, is suffering $500 million in losses as a result, Delta Air Lines CEO Ed Bastian told CNBC.
“We have no choice,” Mr. Bastian said, adding that “If you’re going to be having access, priority access to the Delta ecosystem in terms of technology, you’ve got to test the stuff. You can’t come into a mission critical 24/7 operation and tell us we have a bug.”
A CrowdStrike spokesperson told CNBC that the company had no knowledge of a suit from Delta and had no further comment.
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