Aug. 1 (UPI) -- Lawyers for CrowdStrike shareholders Thursday said they are suing the cybersecurity company over falling stock prices caused by the July 19 global IT outage triggered by a failed CrowdStrike security update.
The law firm Labaton Keller Sucharow said the suit, Plymouth County Retirement Association v. CrowdStrike Holdings, Inc., alleges that CrowdStrike's statements repeatedly touting the efficacy of its Falcon software program were false and misleading.
The lawsuit alleges CrowdStrike said the company "had instituted deficient controls in its procedure for updating Falcon and was not properly testing updates to Falcon before rolling them out to customers" and that 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."
The suit says the outages "could pose, and in fact ultimately created, substantial reputational harm and legal risk to CrowdStrike."
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The suit argues that CrowdStrike concealed the legal risk associated with using its products and that the outage incident lowered stock prices, harming shareholders.
According to the lawsuit, "The CrowdStrike Outage subjected CrowdStrike to substantial legal liability and massive reputational damages."
CrowdStrike share prices fell 11%, to close at $304.96 July 19 in the wake of the outage caused by the company's Falcon platform.
Before the July 19 outage the stock was trading at historic highs between $350 and $390, but it fell to $232 per share afer the outage.
The suit adds that on July 22 after Congress called CrowdStrike CEO George Kurtz to testify about the outage, the company's stock rating was "downgraded by analysts such as Guggenheim and BTIG" causing another 13.5% share price drop.
"Plaintiff and the Class have suffered damages that, in reliance on the integrity of the market, they paid artificially inflated prices for CrowdStrike stock," the lawsuit said. "Plaintiff and the Class would not have purchased CrowdStrike stock at the prices they paid, or at all, if they had been aware that market prices had been artificially and falsely inflated by Defendants' misleading statements."
Crowdstrike told PC Magazine it believes "the case lacks merit and we will vigorously defend the company."
