Crowdstrike Lawsuit: Do Shareholders Have a Case?

Crowdstrike shareholders have announced their intention to sue the company over its involvement in the global outage that affected in excess of eight million computers around the world starting on the 19th of July, and, many speculate that this class-action lawsuit is just the beginning of more legal action to come.

Shareholders allege that Crowdstrike executives intentionally misled investors by means of both ambiguous and patently false statements regarding the adequacy of its software and software testing.

The indignation of shareholders comes after the announcement of the drastic, yet unsurprising, drop in Crowstrike share prices, marking a 32% decrease in 12 days.

The lawsuit asserts that this decrease has resulted in a real-world loss in market value of an incredible $25 billion, which makes this response by shareholders relatively unsurprising.

However, while it’s undeniable that the faulty update resulted in widespread chaos among Microsoft devices, unhappy customers and users and a significant devaluation of Crowdstrike as a whole, the lawsuit is focused on the actions and intentions of executives, not necessarily the ramifications of the outage.

So, the question everybody’s asking is, do Crowdstrike shareholders actually have a case?

Well, to get anywhere near answering that, we’re going to need to have a closer look at exactly what the lawsuit accuses Crowdstrike and its executives of and the validity of their claims.

 

Allegations in the Crowdstrike Lawsuit

 

At the core of investors’ allegations against Crowdstrike is the supposition that they were intentionally and unambiguously made to believe that the company’s software updates had been adequately tested and had passed all relevant testing.

In fact, the lawsuit specifically cites a Zoom call on which George Kurtz, Crowdstrike’s CEO, asserted that the updates were” validated, tested and certified”.

Shareholders argue that while company execs were promoting the efficacy of its software, they neglected to disclose the fact that actually, internal controls pertaining to the functionality of software were deficient.

The accusations say that the combination of Crowdstrike’s misleading statements about software update testing and their failure to disclose this information about problems they’d been aware of led to company share prices being artificially inflated.

 

 

This resulted in investors purchasing shares under false pretences and having a false sense of security about the funds they’d put into Crowdstrike shares.

For these actions, they’re seeking compensation to make up for the significant financial losses that have been suffered across the board.

The lawsuit has been filed as a class-action suit and is led by the Plymouth County Retirement Association who bought shares in Crowdstrike. With New York-based law firm Labaton Keller Sucharow at the helm, the lawsuit was field in Texas and is seeking unspecified damages.

 

How Strong is the Shareholders’ Case?

 

At this point, it’s tough to make a definitive statement about just how strong the case is against Crowdstrike, because they haven’t yet released all the details.

That is, we don’t actually know what or how much they’re suing them for, and on top of that, the full extent of the evidence and supporting information hasn’t been shared with the public.

However, having said that, there are a few assertions we’re willing to making.

Most importantly, the case isn’t about whether or not the outage resulted in financial losses for shareholders, individuals and other companies, although that is, obviously, what sparked the initial outrage.

The legal standing of the plaintiffs, with Plymouth County Retirement Association leading the charge, is based completely on the fact that Crowdstrike executives knew their software used for updates hadn’t been adequately tested and that there was potential for trouble.

On top of that, however, not only did they go on to use this software for clients, but they knowingly and deliberately lied about the efficacy of the software when questioned about it.

Essentially, the above case is able to be proven in a court of law, it seems likely that Crowdstrike is going to be in some serious trouble.

The other consideration, as we briefly alluded to, is that there have been whisperings about additional impending lawsuits from the likes of Delta Airlines.

Delta CEO, Ed Bastian, has estimated that the company has lost a total of about $500 million as a direct result of the outage, as it was forced to cancel more than 5,000 flights.

Furthermore, Bastian has asserted that the company suffered reputational damage too, and will most likely be seeking compensation for this devastating blow.

So, while we can’t say for sure what the results will be of this legal battle, it seems unlikely that Crowdstrike will get away scot-free.