By Jonathan Stempel
Jan 14 (Reuters) – A federal judge dismissed a lawsuit by CrowdStrike shareholders who said the cybersecurity company defrauded them by concealing its inadequate software testing and quality assurance procedures, before a July 2024 outage crashed more than 8 million Microsoft Windows-based computers worldwide.
In a decision made public on Tuesday, U.S. District Judge Robert Pitman in Austin, Texas said shareholders failed to plausibly allege that a large number of statements by CrowdStrike and top executives in regulatory filings, on earnings calls and on the company’s website were materially false and misleading, or motivated by an intent to defraud.
Led by New York State Comptroller Thomas DiNapoli, the shareholders alleged that CrowdStrike had “no test plans and no quality assurance team,” citing former employees, and that executives at the Austin-based company prioritized “speed over everything else” to maximize profit.
But despite finding two questionable statements that concerned adherence to security requirements set by federal authorities including the Department of Defense, Pitman said the shareholders “failed to plausibly plead a strong inference of [intent to defraud] for the individual defendants or for CrowdStrike itself.”
DiNapoli oversees the $291.4 billion New York State Common Retirement Fund, one of the largest U.S. public pension funds. Pitman said the comptroller can try to amend his complaint.
A spokesman for DiNapoli said on Wednesday that the decision is “under review.” Cathleen Anderson, CrowdStrike’s chief legal officer, said “we appreciate the court’s thoughtful consideration and decision to dismiss this case.”
DELTA, AIRLINE PASSENGERS ALSO SUED CROWDSTRIKE
A flawed update of CrowdStrike’s Falcon software has been blamed for the July 19, 2024 outage, which disrupted airlines, banks, hospitals and 911 emergency lines.
CrowdStrike’s share price fell 32% over the next 11 days, wiping out $25 billion of market value as the outage’s effects became known.
Delta Air Lines was particularly hard hit by the outage, saying it lost about $500 million and canceled more than 7,000 flights.
The carrier also sued CrowdStrike, and last May a Georgia state judge let Delta pursue most of its case.
Last June, Pitman dismissed a related lawsuit against CrowdStrike by airline passengers. They are appealing that decision to the federal appeals court in New Orleans.
(Reporting by Jonathan Stempel in New York)
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