CrowdStrike, the cybersecurity company that caused a massive global computer outage in July, has been sued for misleading investors.
A class action lawsuit filed in Texas by the Plymouth County Retirement Association, a pension fund, alleges that CrowdStrike misled investors by representing its technology as “verified, tested and certified,” when in fact, the investors allege, CrowdStrike's software was anything but.
“Defendants failed to disclose that: (1) CrowdStrike implemented insufficient controls over its Falcon update procedures and did not adequately test Falcon updates before deploying them to customers; (2) this improper software testing created a significant risk that the Falcon updates would cause widespread outages for many of the company's customers; and (3) such outages could, and ultimately did, result in significant reputational damage and legal risk for CrowdStrike.” As a result, the lawsuit alleges, “CrowdStrike's stock price was traded artificially inflated until the widespread outages allowed its stock price to recover.”
“We believe this lawsuit is without merit and will vigorously defend the company,” a CrowdStrike spokesperson said.
Securities fraud lawsuits typically arise after an adverse event has occurred for a company. If the reasons for a decline in a stock price were not clearly disclosed to investors in advance, a defendant may be able to prevail by arguing that the lack of disclosure constituted a fraudulent sale of the relevant shares.
CrowdStrike also faces more general legal liability for the outage. Delta Air Lines Chief Executive Ed Bastian estimated on Wednesday that the outage would force the cancellation of more than 5,000 flights and ultimately cost the company $500 million (£391 million). He said airlines had “no choice” but to seek damages as a result.
“To get priority access to the Delta ecosystem on the technology side, we need to test how it works. We can't just walk into a mission-critical operation that runs 24/7 and say there's a bug,” Bastian added. “We have to protect our shareholders. We have to protect our customers and employees, not just from costs but from damage to our brand and reputation.”
The outage, which crashed roughly 1% of Windows PCs worldwide, was estimated to have cost the Fortune 500 companies in the U.S. alone $5 billion. Nevertheless, the company's most visible response, aside from its efforts to restore service, was to thank “teammates and partners” who helped resolve the outage by sending $10 UberEats gift cards, though Uber quickly blocked the gift cards due to fears of possible fraud.
Source: www.theguardian.com
