CrowdStrike Facing Lawsuits After Global IT Outage

A group of shareholders is suing CrowdStrike, saying the cybersecurity company misled them about its software testing and left them blindsided by the July 19 global outage that crashed 8.5 million Microsoft Windows computers.

A bug in an update to CrowdStrike’s Falcon software was blamed for the outage, which could drain a total of $5.4 billion from Fortune 500 companies.

Pension fund Plymouth County Retirement Association filed the suit Tuesday in an Austin federal court. The lawsuit argues CrowdStrike had misled investors and promised the company’s technology was “validated, tested and certified.” That caused false confidence, the lawsuit says.

“Defendants had failed to disclose that: (1) CrowdStrike had instituted deficient controls in its procedure for updating 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.”

CrowdStrike’s stock price had fallen to $228.38 per share, compared to its pre-outage price of $343.05 per share -- a drop of 33.4%. The suit claims that prior to the outage, CrowdStrike’s stock was trading at “artificially inflated prices.”

Related:CrowdStrike Aftermath: Lessons Learned for Future Recovery

In a statement, a CrowdStrike spokesperson said: “We believe this case lacks merit and we will vigorously defend the company.”

Those enrolled in the retirement group's pension fund will automatically be included in the class-action suit.

Delta Legal Action Likely

More legal action will likely be heading CrowdStrike’s way, as CNBC reported that Delta Air Lines hired high-profile attorney David Boies and plans to seek damages from CrowdStrike and Microsoft. Delta CEO Ed Bastian on CNBC’s Squawk Box blasted the companies over their outage response, saying the airline would take a $500 million hit after canceling more than 5,400 flights over five days.

While all airlines were impacted in the outage, Delta was hit particularly hard, and the Department of Transportation is investigating the airline’s widespread flight disruptions and service failures.

Boies is a prominent attorney and chairman of Boies Schiller Flexer (BSF) law firm. His notable cases include representing the US government in its antitrust lawsuit against Microsoft and helping to overturn California’s ban on gay marriage.