CrowdStrike Sued by Shareholders for Defrauding Investors, Causing Global Tech Outage

By Danielle Ong

Aug 02 2024, 02:55 AM EDT

CrowdStrike-Microsoft Outage Cost Delta Air Lines $500 Million After 4,000 Flight Cancellations — Travelers wait in line on the check-in floor of the Delta Air Lines terminal at Los Angeles International Airport (LAX) on July 23, 2024 in Los Angeles, California. Delta Air Lines is still reeling in the aftermath of the CrowdStrike outage with 24 flights cancelled and 27 flights delayed at LAX today and 434 cancelled Delta flights nationwide today. Mario Tama/Getty Images

CrowdStrike has now been sued by its shareholders who said the company is defrauding investors by concealing how its software caused the global tech outage in July.

The class action lawsuit, filed in Texas by Plymouth County Retirement Association, accused CrowdStrike of misleading investors by attesting that its technology was "validated, tested, and certified." However, the software would later cause the July 19 global outage that crashed more than 8 million computers, disrupted business operations, and canceled thousands of flights.

"Defendants had failed to disclose that: (1) CrowdStrike had instituted deficient controls in its procedure for updating Falcon and was not properly testing updates to Falcon before rolling them out to customers; (2) this inadequate software testing created a substantial risk that an update to Falcon could cause major outages for a significant number of the Company's customers; and (3) such outages could pose, and in fact ultimately created, substantial reputational harm and legal risk to CrowdStrike," the suit read, per The Guardian.

In the lawsuit, the shareholders also noted that CrowdStrike's share price fell 32% over the next 12 days following the outage. This later wiped out $25 billion of market value.

The shareholders are seeking an unspecified amount in damages for holders of CrowdStrike Class A shares between Nov. 29, 2023, and July 29, 2024.

Other Legal Consequences

Apart from the lawsuit from the shareholders, experts believe more companies may sue CrowdStrike for the tech outage. Delta, for instance, said the outage cost the company $500 million, including lost revenue and compensation and hotels for affected fliers after it was forced to cancel more than 5,000 flights.

"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," Delta Air Lines CEO Ed Bastian said on CNBC's Squawk Box.

While Delta has yet to file a lawsuit against CrowdStrike, it did hire the law firm of high-profile attorney David Boies to pursue compensation.