A U.S. federal judge dismissed a lawsuit filed by CrowdStrike shareholders. The shareholder accused the cybersecurity company of defrauding shareholders by deliberately concealing flaws in its software testing and quality assurance processes before a software outage in July 2024. The outage paralyzed more than 8 million Microsoft Windows computers around the world.
U.S. District Judge Robert Pittman in Austin, Texas, announced the verdict on Tuesday, stating that shareholders failed to provide sufficient evidence to prove that a large number of statements released by CrowdStrike and its executives in regulatory documents, earnings calls and the company's official website were materially false and misleading, nor could they prove that they had intentional fraud.
The lawsuit was led by New York State Comptroller Thomas DiNapoli. Shareholders cited testimony from former employees that CrowdStrike had "neither a testing program nor a quality assurance team," and that executives at the Austin-based company pursued a "speed first" principle in pursuit of maximizing profits.
Although the judge found that CrowdStrike made two statements that were questionable in terms of complying with security requirements established by federal agencies such as the U.S. Department of Defense, Pittman pointed out that the shareholders "failed to infer with reasonable evidence that the individual defendants involved or CrowdStrike itself committed fraud."
DiNapoli oversees the $291.4 billion New York State General Retirement Fund, one of the largest public pension funds in the United States. Pittman said the auditor general could try to amend the complaint and file the lawsuit again.
A spokesman for DiNapoli responded on Wednesday that he was "evaluating the outcome of the verdict." CrowdStrike Chief Legal Officer Katherine Anderson said, "We are grateful to the court for its careful consideration and decision to dismiss the case."
Delta Air Lines and passengers also file lawsuit against CrowdStrike
The outage on July 19, 2024 was caused by a faulty update of CrowdStrike's Falcon software. The incident disrupted the normal operations of airlines, banks, hospitals and 911 emergency call systems.
In the 11 days after the impact of the outage gradually unfolded, CrowdStrike's stock price fell by 32%, and its market value evaporated by US$25 billion.
Delta Air Lines was particularly hard hit by the incident, which said it lost about $500 million and canceled more than 7,000 flights.
The airline also filed a lawsuit against CrowdStrike. Last May, a Georgia state court judge ruled that Delta could move forward on most claims in the case.
Last June, Judge Pittman dismissed a related lawsuit brought by airline passengers against CrowdStrike. Currently, the passengers have appealed this decision to the Federal Court of Appeal in New Orleans.