CrowdStrike suit to be led by DiNapoli after state pension fund loss of more than $16M

An investors’ lawsuit against cybersecurity company CrowdStrike Holdings Inc. and the financial fallout from the computer outage it caused in July will be led by state Comptroller Thomas P. DiNapoli.

DiNapoli, a Democrat from Great Neck Plaza, has been named the lead plaintiff in a class-action lawsuit filed by CrowdStrike shareholders in federal court in Texas. They sued after the company’s stock price plummeted in the face of its failed software update on July 19, which led to the shutdown of millions of computers using Microsoft software across the globe.

DiNapoli is sole trustee of the state’s Common Retirement Fund, which lost more than $16 million when the value of its CrowdStrike investment fell. The magnitude of the fund’s loss qualifies DiNapoli to lead the lawsuit, he said in a court filing.

“CrowdStrike misled investors by falsely touting its safeguards and quality assurance” for the company’s Falcon cybersecurity software, DiNapoli said in announcing his role in the suit.

Austin, Texas-based CrowdStrike’s “actual failure to meet industry standards and deficient software testing and security processes were exposed after it caused one of the largest cyber disasters in history — leading to a worldwide shutdown and billions in losses to investors. As lead plaintiff, we look to hold company leadership accountable for misleading investors,” he said.

A CrowdStrike representative didn't respond to a request for comment last week.

The outage impacted hospitals, supermarkets, banks and other businesses. Most notably, Delta Air Lines was forced to cancel more than 5,000 flights because it lost track of its pilots and flight attendants. Tens of thousands of passengers were stranded for nearly a week.

Delta and CrowdStrike are now suing each other.

CrowdStrike shares were trading at more than $350 per share prior to the outage. They lost as much as 36% of their value before rebounding. The stock closed down 75 cents, or less than 1%, to $330.03 on the Nasdaq Stock Market on Friday.

The state pension fund doubled its stake in CrowdStrike less than a month before the outage to 279,360 shares as of June 30, according to a securities filing. DiNapoli said the investment totaled $72 million as of Sept. 30.

The fund is the third largest of its kind, with assets totaling $268 billion as of June 30. It serves more than one million state and local government employees, retirees and their beneficiaries.

The CrowdStrike lawsuit is the seventh in which DiNapoli is the lead plaintiff. He and his predecessors have recovered more than $11.8 billion for investors in prior cases, DiNapoli said in a court filing.

Besides the Common Retirement Fund, other plaintiffs in the CrowdStrike suit include Plymouth County Retirement Association in Massachusetts, which originated the legal action.

By James T. Madore

james.madore@newsday.comJamesTMadore

James T. Madore writes about Long Island business news including the economy, development, and the relationship between government and business. He previously served as Albany bureau chief.