CrowdStrike Probed Over $32M IRS Deal
Crowdstrike (NASDAQ:CRWD) dips after DOJ and SEC probe executives' roles in a $32 million Carahsoft-IRS deal.
U.S. prosecutors and regulators are scrutinizing a 2023 agreement under which CrowdStrike sold cybersecurity services to the IRS via Carahsoft, despite no products ever being purchased.
Warning! GuruFocus has detected 5 Warning Sign with CRWD.
Shares slid about 3% on Friday after Bloomberg reported that the Department of Justice and Securities and Exchange Commission are investigating what senior executives knew and whether the transaction was properly accounted for.
The 2023 dealstructured as four $8 million paymentscould have swung CrowdStrike's revenue and ARR metrics, and the company later excluded roughly $26 million from its annual recurring revenue, citing distributor-transferability issues.
Investigators have interviewed former staff about potential pre-booking or channel-stuffing practices and are reviewing responses to Sarbanes-Oxley compliance questionnaires. They've expanded their review to other federal contracts, including a $1 million-plus IRS order and multi-million-dollar deals with the Departments of Health and Human Services and Energy.
CrowdStrike's spokesperson, Kevin Benacci, reiterated that we stand by the accounting of the transaction, while Carahsoft says it continues to support the deal. Regulators have also obtained internal records showing at least one employee flagged concerns about the transaction's completeness.
Why It Matters: The probes highlight legal, financial and reputational risks for cybersecurity firms when large distributor transactions skirt delivery and revenue recognition norms.
Investors will look to CrowdStrike's Q2 earnings call for updates on legal reserves and any impact on guidance. As of May 9, 2025, CrowdStrike Holdings has a GF Value of $363.59, with the stock currently trading above fair value, signaling it is modestly overvalued. The price trend has outpaced GF Value estimates, suggesting investor enthusiasm may be running ahead of fundamentals.
This article first appeared on GuruFocus.
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