The US Department of Justice and the SEC jointly review CrowdStrike's $32 million phantom orders.

According to sources familiar with the matter, the Department of Justice and the Securities and Exchange Commission (SEC) in the United States are conducting a deep investigation into the cybersecurity giant CrowdStrike (CRWD.US), focusing on a suspicious transaction of $32 million with the distributor Carahsoft Technology Corp. This cloud of doubt surrounding an order from the Internal Revenue Service (IRS) is leading to a broader financial review. It is understood that in the final quarter of the 2023 fiscal year, CrowdStrike completed a transaction with Carahsoft to provide network security software to the IRS. However, strangely, the IRS never actually purchased or received the products in question. Despite CrowdStrike's insistence that "Carahsoft paid on time," the motive behind the transaction remains unclear. Carahsoft has only stated that they "supported the transaction" but did not explain why they entered into a partnership without an actual buyer. Investigators have questioned former employees about the process of reaching this deal, the knowledge of CrowdStrike's leadership, and whether employees had concerns about other transactions. They have also obtained internal records from CrowdStrike. These inquiries indicate that the scope of the investigation is broader than previously known. It is worth noting that this $32 million transaction is crucial for CrowdStrike. Without this revenue, their key financial indicators for the fourth quarter of 2023 may fall below Wall Street expectations. CEO George Kurtz had boasted during an earnings call about securing "eight-figure orders from the federal government," causing the company's stock to rise by 10% the next day. However, in November of the preceding year, CrowdStrike suddenly deducted $26 million from its annual recurring revenue. CFO Bert Podbere clarified vaguely that this was due to "the exercise of transferable rights" by the distributor. This unusual move has intensified doubts among outsiders about the authenticity of the transactions. Furthermore, investigators have also inquired whether other transactions at CrowdStrike were handled in a similar manner, specifically asking about another transaction involving the IRS in 2023 worth over $1 million, as well as transactions worth millions of dollars with the Department of Health and Human Services and the Department of Energy. As early as last fall, employees within CrowdStrike had raised concerns about the company inflating performance through "channel stuffing" (recognizing uncompleted revenue in advance), believing that this may violate the Sarbanes-Oxley Act requirements for financial integrity. Currently, the Southern District of New York Prosecutor's Office and the SEC are jointly examining whether CrowdStrike falsely reported income through improper means, misleading investors. The investigation has expanded from a single transaction to multiple department orders, with regulatory agencies requesting detailed information on the entire transaction process, including the involvement of the sales team and executives. A spokesperson for CrowdStrike has repeatedly stressed their commitment to "adhering to transaction accounting principles" but has refused to disclose specific transaction details. Carahsoft has not responded to requests for comments.