Cloopen Group Holding Limited for Securities Fraud Class Action

Case Background:

A class action lawsuit has been filed on behalf of those who purchased or acquired Cloopen Group Holding Limited (“Cloopen”) (NYSE: RAAS) American Depositary Shares (“ADSs”) pursuant and/or traceable to the registration statement and prospectus (collectively, the “Registration Statement”) issued in connection with Cloopen’s February 2021 initial public offering (the “IPO”); and/or (2) Cloopen securities between February 9, 2021 and May 10, 2021, inclusive (the “Class Period”).

Cloopen is a large, multi-capability cloud-based communications solution provider in China. In its February 2021 U.S. IPO, Cloopen sold 23 million ADSs at $16 per ADS, netting approximately $342 million in proceeds from the offering.  The complaint alleges that the Registration Statement led Cloopen ADS purchasers to believe that Cloopen’s much-touted growth strategy, which relied upon cross-selling, up-selling, optimizing existing solutions, and developing new features, was effective. The complaint further alleges that Cloopen’s Registration Statement failed to disclose that an increasing number of its customers were refusing to pay, forcing Cloopen to record massive increases in its accounts receivables and allowance for doubtful accounts. The Registration Statement also failed to disclose that Cloopen was weighted down by massive liabilities related to the fair value of certain recently-granted warrants.

The truth began to be revealed on March 26, 2021, when Cloopen published its fourth quarter 2020 and fiscal year 2020 financial results, which closed on December 31, 2020, more than a month before the IPO. Cloopen reported disappointing revenue and increased operating expenses for the fourth quarter.  Cloopen blamed a “change in fair value of warrant liabilities of . . . US$34.4 million” for Cloopen’s remarkable net loss and “an increase in the provision for doubtful accounts resulting from increased in accounts receivables” for the 59.2% increase in general and administrative expenses.  Following this news, the price of Cloopen’s ADSs fell 18.5%, dropping from $14.42 per ADS on March 25, 2021 to $11.75 per ADS on March 26, 2021.

Then, on May 10, 2021, after the market closed, Cloopen filed its Annual Report on a Form 20-F, revealing for the first time that its dollar-based net customer retention rate for recurring solutions had fallen from 102.7% in 2019 to 86.8% by year end 2020. This meant Cloopen’s purportedly “loyal” existing customer base was not “expand[ing]” into additional solutions — a fact the defendants had to have known given how Cloopen “built a sales and marketing team well-versed in China’s cloud-based communications industry,” tasked its team members with “renewing existing subscriptions[] and maintaining customer relationships,” and established strategically-located sales representative offices to “stay closer to potential [and existing] customers, and capture and accommodate specific needs . . . more effectively.” In other words, Cloopen finally admitted that its growth strategy was not working.  Following this news, the price of Cloopen’s ADSs fell from $9.89 per ADS on May 11, 2021 (and $9.59 per ADS on May 10th) to close at $8.97 per ADS on May 12, 2021. As of the date the initial complaint was filed, Cloopen’s ADSs had traded as low as $2.70 per ADS, representing a decline of over 80% from the $16 IPO price.

The complaint alleges that in the Registration Statement and throughout the Class Period, the defendants failed to disclose to investors that: (1) Cloopen’s “land and expand” strategy was failing and its customer base deteriorating; (2) Cloopen’s dollar-based net retention rate was not “stable,” but rather had dropped significantly by the end of 2020; (3) an increasing number of customers were not paying Cloopen for the services and/or solutions it provided, forcing Cloopen to recognize massive increases in its accounts receivables and its allowance for doubtful accounts, the latter of which reflects Cloopen’s determination that these accounts were uncollectible; and (4) Cloopen had massive additional costs associated with the warrants that needed to be recognized.

If you wish to discuss this action or have any questions concerning this notice or your rights or interests with respect to these matters, please contact Kessler Topaz Meltzer & Check, LLP:  James Maro, Esq. (484) 270-1453; or via e-mail at info@ktmc.com.  If you would like additional information about the suit, please click on the link "Submit Your Information" above and fill out the form as promptly as possible.