CrowdStrike, the prominent cybersecurity company, faces a proposed class action lawsuit filed by shareholders in the Austin, Texas, federal court. The lawsuit claims that CrowdStrike misled investors about the reliability of its software, which culminated in a disastrous outage on July 19, affecting airlines, banks, hospitals, and emergency services globally.
The shareholders allege that CrowdStrike’s assurances about its technology were materially false and misleading. This became evident when a flawed software update caused widespread disruption, leading to a sharp 32% decline in CrowdStrike’s share price over 12 days, erasing $25 billion in market value. The impact of the outage prompted Chief Executive George Kurtz to testify before the U.S. Congress, and Delta Air Lines reportedly hired prominent lawyer David Boies to seek damages.
The legal action is led by the Plymouth County Retirement Association of Plymouth, Massachusetts, and seeks unspecified damages for holders of CrowdStrike Class A shares between November 29, 2023, and July 29, 2024. It’s not uncommon for shareholders to sue companies following unexpected negative news that causes stock prices to fall, and CrowdStrike could potentially face more lawsuits in the future.
Delta Air Lines Chief Executive Ed Bastian told CNBC that the outage cost the airline $500 million, including lost revenue and compensation for stranded passengers. On Wednesday, CrowdStrike shares closed down $1.69 at $231.96, a steep drop from the $343.05 closing price the day before the outage.
