CrowdStrike, headquartered in Austin, Texas, is a global cybersecurity company that provides software that helps prevent data breaches. CrowdStrike’s customers are major corporations across several industries including airlines, banks, hospitals, and telecommunications providers as well as government entities. CrowdStrike’s main product is the Falcon software platform, which purportedly uses artificial intelligence and machine learning technologies to detect, prevent, and respond to security breach threats. The Falcon software is embedded in the computers of CrowdStrike’s customers and requires constant updates.
Throughout the Class Period, Defendants repeatedly touted the efficacy of the Falcon platform while assuring investors that CrowdStrike’s technology was “validated, tested, and certified.” The Complaint alleges that these statements were false and misleading because Defendants had failed to disclose that: (1) CrowdStrike had instituted deficient controls in its procedure for updating Falcon and was not properly testing updates to 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. As a result of these materially false and misleading statements and omissions, CrowdStrike stock traded at artificially high prices during the Class Period.
Beginning on July 19, 2024, investors learned about critical issues with CrowdStrike’s technology when a single update pushed by CrowdStrike caused outages for millions of users of Microsoft Windows devices worldwide, including financial institutions, government entities, and corporations. Further, CrowdStrike disclosed that the outages had left users vulnerable to potential hacking threats. On this news, shares of CrowdStrike fell $38.09 or 11% to close at $304.96 on July 19, 2024. Then, on July 22, 2024, the fallout of the outages was further revealed as Congress called on Defendant Kurtz to testify regarding the crisis and the Company’s stock rating was downgraded by analysts such as Guggenheim and BTIG. On this news, shares of CrowdStrike fell $41.05 or 13.5% to close at $263.91 on July 22, 2024. Investors continued to learn about the legal risk Defendants had concealed on July 29, 2024, as news outlets reported that Delta Air Lines had hired prominent attorney David Boies to seek damages from the Company following the outages. On this news, shares of CrowdStrike fell $25.16 or 10% to close at $233.65 on July 30, 2024.
