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FILED: NEW YORK COUNTY CLERK 04/19/2021 05:52 PM INDEX NO. 652617/2021
NYSCEF DOC. NO. 2 RECEIVED NYSCEF: 04/19/2021
SUPREME COURT OF THE STATE OF NEW YORK
COUNTY OF NEW YORK
SONNY ST. JOHN, Individually and on ) Index No.:
Behalf of All Others Similarly Situated, )
)
Plaintiff, )
v. )
)
CLOOPEN GROUP HOLDING LIMITED, )
CHANGXUN SUN, YIPENG LI, KUI )
ZHOU, QINGSHENG ZHENG, ) DEMAND FOR JURY TRIAL
XIAODONG LIANG, ZI YANG, MING )
LIAO, FENG ZHU, LOK YAN HUI, )
JIANHONG ZHOU, CHING CHIU, )
COGENCY GLOBAL INC., COLLEEN A. )
DEVRIES, GOLDMAN SACHS (ASIA) )
L.L.C, CITIGROUP GLOBAL MARKETS )
INC., CHINA INTERNATIONAL )
CAPITAL CORPORATION HONG KONG )
SECURITIES LIMITED, TIGER BROKERS )
(NZ) LIMITED, and FUTU, INC., )
)
Defendants. )
)
COMPLAINT FOR VIOLATIONS OF THE SECURITIES ACT OF 1933
Plaintiff Sonny St. John (“Plaintiff”), individually and on behalf of all others similarly
situated, by Plaintiff’s undersigned attorneys, alleges the following based upon personal
knowledge as to Plaintiff and Plaintiff’s own acts, and upon information and belief as to all other
matters, based on the investigation conducted by and through Plaintiff’s attorneys, which included,
among other things, a review of U.S. Securities and Exchange Commission (“SEC”) filings by
Cloopen Group Holding Limited (“Cloopen” or the “Company”), articles and other publications,
including media and analyst reports about the Company and Company press releases. Plaintiff
believes that substantial additional evidentiary support will exist for the allegations set forth herein.
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SUMMARY OF THE ACTION
1. Plaintiff brings this securities class action on behalf of persons who purchased, or
otherwise acquired, Cloopen American Depositary Shares (“ADS”) pursuant or traceable to the F-
1 registration statement (including all amendments made thereto) and related prospectus on Form
424B4 (collectively, the “Registration Statement”) issued in connection with Cloopen’s February
2021 initial public stock offering (the “IPO” or “Offering”).
2. This action asserts non-fraud, strict liability claims under §§11, 12, and 15 of the
Securities Act of 1933 (“1933 Act” or “Securities Act”), against Cloopen, certain Cloopen officers
and directors, the underwriters of the IPO, and Cloopen’s U.S. representatives (collectively, the
“Defendants”).
3. Cloopen purports to be the largest multi-capability cloud-based communications
solutions provider in China, and the only provider in China that offers a full suite of cloud-based
communications solutions covering communications platform as a service, or CPaasS, cloud-based
contact centers, or cloud-based CC, and cloud-based unified communications and collaborations,
or cloud-based UC&C. Cloopen conducted the IPO in New York, and its ADS are listed on the
New York Stock Exchange (NYSE) under the ticker symbol “RAAS.”
4. In February 2021, as part of Cloopen’s IPO, Defendants issued approximately 20
million ADS to the investing public at $16 per ADS, all pursuant to the Registration Statement.
5. The Registration Statement contained untrue statements of material fact and
omitted to state material facts both required by governing regulations and necessary to make the
statements made not misleading. Specifically, the Registration Statement misrepresented and
omitted Cloopen’s then-existing financial situation, including its swelling net losses, which had
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already manifested at the time of the IPO. For example, the Registration Statement stated as
follows:
In 2018 and 2019, we incurred net loss of RMB155.5 million and
RMB183.5 million (US$27.0 million), respectively. In the nine
months ended September 30, 2019 and 2020, we incurred net loss
of RMB129.6 million and RMB203.7 million (US$30.0 million),
respectively. We estimate that the year-on-year growth of our
revenues and increase of costs and expenses in the fourth quarter
of 2020 to be slightly below those of the first nine months of 2020
as compared with the first nine months of 2019.
[Emphasis added.]
6. In truth, by the time of the IPO, Cloopen knew (or had information making it
foreseeable to know) that its fourth quarter 2020 net losses and operating expenses were severely
above these purported markers. Indeed, as was later revealed, Cloopen’s net loss for the fourth
quarter of 2020 was RMB305.4 million, US$46.8 million, representing a 466.9% increase year-
over-year. Likewise, Cloopen’s operating expenses for the same period ballooned 30% due to, in
substantial part, a 59.2% increase in the Company’s General and Administrative (“G&A”)
expenses related to an increase in Cloopen’s provision for doubtful accounts, resulting from
increased accounts receivables. Cloopen’s historical net losses and G&A expenses, therefore,
were drastically different than what the Company was facing during the very quarter in which it
was going public. Because the Registration Statement did not mention, much less adequately
warn, about Cloopen’s swelling losses and, as a result, poor financial condition before the IPO,
Plaintiff and other ADS purchasers were unable to adequately assess the value of the shares offered
in connection with the IPO, and thus purchased their ADS without material information.
7. This failure to disclose was demonstrably material, given that a month after the
IPO, when Cloopen released its fourth quarter and full-year 2020 financial results, its stock
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cratered, falling 18.5% from $14.42 per ADS on March 25, 2021 to close at $11.75 per ADS on
March 26, 2021. All told, investors lost tens of millions of dollars.
8. Conversely, with material omissions and misrepresentations in the Registration
Statement, Defendants went forward with the IPO, raising approximately $368 million in gross
proceeds after the Underwriter Defendants (defined below) exercised their option to purchase
additional ADS in full.
JURISDICTION AND VENUE
9. This Court has original subject matter jurisdiction under the New York
Constitution, Article VI, §7(a). Removal is barred by §22 of the Securities Act.
10. This Court has personal jurisdiction, and venue is proper under the New York Civil
Practice Laws and Rules (“CPLR”), because Defendants reside or are headquartered in this county;
Defendants and their agents affirmatively solicited and sold the subject securities and offered the
Registration Statement to investors in New York and this county; those contacts have a substantial
connection to the claims alleged herein; and the securities at issue are listed and traded on the
NYSE, which is located in this county.
PARTIES
11. Plaintiff purchased Cloopen ADS pursuant or traceable to the IPO and was
damaged thereby.
12. Defendant Cloopen is a leading multi-capability cloud-based communications
solution provider in China that offers a full suite of cloud-based communications solutions,
Cloopen conducted the IPO in New York, and its ADS are listed on the NYSE under the ticker
symbol “RAAS.”
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13. Defendant Cogency Global Inc. (“Cogency Global”) was Cloopen’s authorized
U.S. representative for purposes of the IPO. Defendant Colleen A. DeVries (“DeVries”), who
signed the Registration Statement, is an employee of Defendant Cogency Global. As a result,
Defendant Cogency Global is liable for the securities law violations committed by Defendant
DeVries, in its capacity as employer and as a control person under the Securities Act.
14. Defendant Changxun Sun (“Sun”) founded Cloopen and was, at the time of the
IPO, Cloopen’s Chief Executive Officer (“CEO”) and Chairman of Cloopen’s Board of Directors
(the “Board”). Defendant Sun reviewed, contributed to, and signed the Registration Statement.
15. Defendant Yipeng Li (“Li”) was, at the time of the IPO, Cloopen’s Chief Financial
Officer (“CFO”) and a Director on Cloopen’s Board. Defendant Li reviewed, contributed to, and
signed the Registration Statement.
16. Defendant Kui Zhou (“Zhou”) was, at the time of the IPO, a Director on Cloopen’s
Board. Defendant Zhou reviewed, contributed to, and signed the Registration Statement.
17. Defendant Qingsheng Zheng (“Zheng”) was, at the time of the IPO, a Director on
Cloopen’s Board. Defendant Zheng reviewed, contributed to, and signed the Registration
Statement.
18. Defendant Xiaodong Liang (“Liang”) was, at the time of the IPO, a Director on
Cloopen’s Board. Defendant Liang reviewed, contributed to, and signed the Registration
Statement.
19. Defendant Zi Yang (“Yang”) was, at the time of the IPO, a Director on Cloopen’s
Board. Defendant Yang reviewed, contributed to, and signed the Registration Statement.
20. Defendant Ming Liao (“Liao”) was, at the time of the IPO, a Director on Cloopen’s
Board. Defendant Liao reviewed, contributed to, and signed the Registration Statement.
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21. Defendant Feng Zhu (“Zhu”) was, at the time of the IPO, a Director on Cloopen’s
Board. Defendant Zhu reviewed, contributed to, and signed the Registration Statement.
22. Defendant Lok Yan Hui (“Hui”) was, at the time of the IPO, a Director on
Cloopen’s Board. Defendant Hui reviewed, contributed to, and signed the Registration Statement.
23. Defendant Jianhong Zhou (“J. Zhou”) was, at the time of the IPO, a Director on
Cloopen’s Board. Defendant J. Zhou reviewed, contributed to, and signed the Registration
Statement.
24. Defendant Ching Chiu (“Chiu”) was, at the time of the IPO, a Director on
Cloopen’s Board. Defendant Chiu reviewed, contributed to, and signed the Registration
Statement.
25. Defendant DeVries served as Senior Vice President on behalf of Defendant
Cogency Global, the designated U.S. Representative of Defendant Cloopen, and reviewed,
contributed to, and signed the Registration Statement.
26. Defendants Sun, Li, Zhou, Zheng, Liang, Yang, Liao, Zhu, Hui, J. Zhou, Chiu, and
DeVries are collectively referred to herein as the “Individual Defendants.” The Individual
Defendants each signed the Registration Statement, solicited the investing public to purchase
securities issued pursuant thereto, hired and assisted the underwriters, planned and contributed to
the IPO and Registration Statement, and attended road shows and other promotions to meet with
and present favorable information to potential Cloopen investors, all motivated by their own, and
the Company’s, financial interests.
27. Defendants Goldman Sachs (Asia) L.L.C., Citigroup Global Markets Inc.
(“Citigroup”), China International Capital Corporation Hong Kong Securities Limited, Tiger
Brokers (NZ) Limited, and Futu, Inc., are financial services companies that acted as underwriters
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for Cloopen’s IPO, helping to draft and disseminate the Registration Statement and solicit
investors to purchase Cloopen securities issued pursuant thereto. These Defendants are referred
to herein as the “Underwriter Defendants.”
28. Pursuant to the Securities Act, the Underwriter Defendants are liable for the false
and misleading statements in the Registration Statement as follows:
a. The Underwriter Defendants are investment banking houses that specialize,
inter alia, in underwriting public offerings of securities. They served as the underwriters
of the IPO and received tens of millions of dollars in fees (collectively), for their service.
The Underwriter Defendants arranged a multi-city road show prior to the IPO, during
which they, and representatives from Cloopen, met with potential investors and presented
highly favorable information about the Company, its operations and its financial prospects.
b. The Underwriter Defendants also demanded and obtained an agreement
from Cloopen and the Individual Defendants, that Cloopen would indemnify and hold the
Underwriter Defendants harmless from any liability under the federal securities laws. They
also made certain that Cloopen had purchased millions of dollars in directors’ and officers’
liability insurance.
c. Representatives of the Underwriter Defendants also assisted Cloopen and
the Individual Defendants in planning the IPO, and purportedly conducted an adequate and
reasonable investigation into the business and operations of Cloopen, an undertaking
known as a “due diligence” investigation. The due diligence investigation was required of
the Underwriter Defendants in order to engage in the IPO. During the course of their “due
diligence,” the Underwriter Defendants had continual access to internal, confidential,
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current corporate information concerning Cloopen’s most up-to-date operational and
financial results and prospects.
d. In addition to availing themselves of virtually unlimited access to internal
corporate documents, agents of the Underwriter Defendants met with Cloopen’s lawyers,
management and top executives and engaged in “drafting sessions” ahead of the IPO.
During these sessions, understandings were reached as to: (i) the strategy to best
accomplish the IPO; (ii) the terms of the IPO, including the price at which Cloopen ADS
would be sold; (iii) the language to be used in the Registration Statement; (iv) what
disclosures about Cloopen would be made in the Registration Statement; and (v) what
responses would be made to the SEC, in connection with its review of the Registration
Statement. As a result of those constant contacts and communications between the
Underwriter Defendants’ representatives and Cloopen’s management and top executives,
the Underwriter Defendants knew of, or in the exercise of reasonable care should have
known of, Cloopen’s existing problems as detailed herein.
e. Finally, the Underwriter Defendants caused the Registration Statement to
be filed with the SEC and declared effective in connection with the offers and sales of
securities registered thereby, including those to Plaintiff and the other members of the
Class.
DEFENDANTS’ FALSE AND MISLEADING
REGISTRATION STATEMENT AND PROSPECTUS
29. On November 13, 2020, Cloopen filed with the SEC, a confidential draft
registration statement on Form F-1, which would be used for the IPO following a series of
amendments in response to SEC comments.
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30. On February 3, 2021, Cloopen filed its final amendment to the Registration
Statement, which registered 20 million Cloopen ADS for public sale. The SEC declared the
Registration Statement effective on February 8, 2021. On February 9, 2021, Defendants priced
the IPO at $16 per ADS and filed the final prospectus for the IPO, which forms part of the
Registration Statement. Through the IPO, Defendants issued and sold approximately 20 million
Cloopen ADS, all pursuant to the Registration Statement.
31. The Registration Statement contained untrue statements of material fact and
omitted to state material facts, both required by governing regulations and necessary to make the
statements made not misleading.
32. In particular, the Registration Statement misrepresents Cloopen’s then-existing
financial condition. For example, Cloopen provides prospective investors its net losses from 2018,
2019 and for the nine months ending September 2020, before then claiming that its fourth quarter
2020—representing the period ending December 31, 2020 (i.e., the period before the IPO)—year
over year increase of costs and expenses will be “slightly below” those of the first nine months of
2020:
In 2018 and 2019, we incurred net loss of RMB155.5 million and RMB183.5
million (US$27.0 million), respectively. In the nine months ended September 30,
2019 and 2020, we incurred net loss of RMB129.6 million and RMB203.7 million
(US$30.0 million), respectively. We estimate that the year-on-year growth of our
revenues and increase of costs and expenses in the fourth quarter of 2020 to be
slightly below those of the first nine months of 2020 as compared with the first nine
months of 2019.
[Emphasis added].
33. Relatedly, the Registration Statement repeatedly provides Cloopen’s operating
expenses, including its general and administrative expenses, for the periods 2018, 2019 and the
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nine months ending September 2020, before then claiming that it can adjust the pace of its business
expansion and “control” operating expenses “when necessary”:
Our general and administrative expenses were RMB92.4 million,
RMB108.3 million (US$16.0 million), RMB66.2 million and RMB138.8 million
(US$20.4 million) in 2018, 2019 and the nine months ended September 30, 2019
and 2020, respectively, primarily representing (1) compensation paid to our
administrative staff and management team, including share-based compensation
expenses, (2) professional services fees, rentals and certain administrative
expenses, and (3) provision for doubtful accounts.
34. In truth, however, Cloopen’s fourth quarter 2020 net loss was substantially
larger—to the tune of $16.8 million, or nearly 500% when compared to the same period the year
prior—because of substantial increases to the fair value of its warrant liabilities issued and/or
exercised before the IPO. So too was Cloopen’s operating expenses for the fourth quarter of 2020,
which increased 30% because of, in substantial part, an increase in its provision for doubtful
accounts resulting from increased accounts receivable, leading the Company’s G&A expenses to
increase over 59% year over year. Because the Registration Statement did not disclose the truth
about Cloopen’s swelling net losses and G&A expenses, and the impact both were already having
on the Company’s financial health, Plaintiff and other ADS purchasers had no opportunity to
adequately assess the value of the shares offered in connection with the IPO.
35. Defendants were required to disclose this material information in the Registration
Statement, for at least three independent reasons. First, SEC Regulation S-K, 17 C.F.R. §229.303
(“Item 303”), required disclosure of any known events or uncertainties that, at the time of the IPO,
had caused, or were reasonably likely to cause, Cloopen’s disclosed financial information not to
be indicative of future operating results. At the time of the IPO, Cloopen knew, or in the exercise
of reasonable care should have known, that its net losses from earlier periods were not indicative
of its fourth quarter net loss, which would be drastically higher than any other reporting period
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because of, among other things, substantial changes to the fair value of its warrant liabilities issued
and/or exercised before the IPO. Likewise, Cloopen knew, or in the exercise of reasonable care
should have known, that its historical G&A expenses were not at all representative of its current
fourth quarter 2020 G&A expenses because Cloopen had materially increased its provision for
doubtful accounts in response to the COVID-19 Pandemic, then-ravaging many small-to medium-
sized customers in China, Cloopen’s primary marketplace. These undisclosed, materially negative
events and trends were likely to (and in fact did) materially and adversely affect Cloopen’s
financial state, and rendered the disclosed results and trends in the Registration Statement
misleading and not indicative of Cloopen’s future operating results.
36. Second, SEC Regulation S-K, 17 C.F.R. §229.105 (“Item 105”) required, in the
“Risk Factor” section of the Registration Statement, a discussion of the most significant factors
that make the offering risky or speculative, and that each risk factor adequately describe the risk.
Cloopen’s discussions of risk factors did not even mention, much less adequately describe the risk
posed by, Cloopen’s rising net losses and operating expenses, the negative impact these were
already having on Cloopen’s business, the other already occurring negative results and trends, nor
the likely and consequent materially adverse effects on the Company’s future results, share price,
and prospects.
37. Third, Defendants’ failure to disclose Cloopen’s mounting net losses and operating
expenses, among other already occurring negative results and trends, much less the likely and
consequent materially adverse effects on the Company’s future results, share price, and prospects;
rendered false and misleading the Registration Statement’s many references to known risks that,
“if” occurring “might” or “could” affect the Company. These “risks” had already materialized at
the time of the IPO.
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38. Nonetheless, Defendants went forward with the IPO, with the foregoing
misrepresentations and omissions in the Registration Statement. With these misrepresentations
and omissions, the IPO was extremely lucrative for Defendants, who raised approximately $368
million in gross proceeds.
39. But when the truth of Defendants’ misrepresentations and omissions began to
emerge, the price of Cloopen’s shares suffered sharp declines. For example, on March 26, 2021,
in a report filed with the SEC on Form 6-K, Defendants released the Company’s fourth quarter
and fiscal year 2020 financial results, stating in relevant part:
Fourth Quarter 2020 Highlights
[…]
Net loss was RMB305.4 million (US$46.8 million), representing a
$466.9% increase year-over-year.
* * *
Operating Expenses
In the fourth quarter of 2020, operating expenses were RMB180.4 million
(US$27.6 million), representing a 30.0% increase from RMB138.8 million in the
fourth quarter of 2019.
[…]
General and administrative expenses increased by 59.2% to RMB67.1
million (US$10.3 million) in the fourth quarter of 2020 from RMB42.1
million in the fourth quarter of 2019, primarily due to (1) an increase in
share-based compensation expenses relating to certain restricted shares of
the Company's founders under the share restriction agreements and waiver
of subscription receivable due from Mr. Changxun Sun, (2) an increase in
the provision for doubtful accounts resulting from increased accounts
receivables, and (3) an increase in professional services fees relating to the
preparation for the Company's IPO.
[Emphasis added].
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* * *
Net Loss
Net loss for the fourth quarter of 2020 was RMB305.4 million (US$46.8 million),
compared with RMB53.9 million in the fourth quarter of 2019 with the increase
primarily driven by increases in non-cash items of RMB240.1 million (US$36.8
million), including change in fair value of warrant liabilities of RMB224.8
million (US$34.4 million) and share-based compensation of RMB15.4 million
(US$2.4 million).
[Emphasis added].
40. On this news, Cloopen’s shares declined 18.5%, falling from $14.42 per ADS on
March 25, 2021 to close at $11.75 per ADS on March 26, 2021.
41. By the commencement of this action, Cloopen’s shares traded as low as $10.28 per
ADS, a nearly 36% decline from the offering price. As a result, investors have lost tens of millions
of dollars.
CLASS ACTION ALLEGATIONS
42. Plaintiff brings this action as a class action on behalf of all those who purchased
Cloopen ADS pursuant or traceable to the Registration Statement (the “Class”). Excluded from
the Class are Defendants and their families, the officers and directors and affiliates of Defendants,
at all relevant times, members of their immediate families and their legal representatives, heirs,
successors or assigns and any entity in which Defendants have, or had, a controlling interest.
43. The members of the Class are so numerous that joinder of all members is
impracticable. While the exact number of Class members is unknown to Plaintiff at this time and
can only be ascertained through appropriate discovery, Plaintiff believes that there are at least
thousands of members in the proposed Class. Record owners and other members of the Class may
be identified from records maintained by Cloopen or its transfer agent, and may be notified of the
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pendency of this action by mail, using the form of notice similar to that customarily used in
securities class actions.
44. Plaintiff’s claims are typical of the claims of the members of the Class, as all
members of the Class are similarly affected by Defendants’ wrongful conduct, in violation of
federal law, that is complained of herein.
45. Plaintiff will fairly and adequately protect the interests of the members of the Class
and has retained counsel competent and experienced in class and securities litigation.
46. Common questions of law and fact exist as to all members of the Class and
predominate over any questions solely affecting individual members of the Class. Among the
questions of law and fact common to the Class are:
(a) whether Defendants violated the Securities Act;
(b) whether the Registration Statement contained false or misleading
statements of material fact and omitted material information required to be stated therein;
and
(c) to what extent the members of the Class have sustained damages and the
proper measure of damages.
47. A class action is superior to all other available methods for the fair and efficient
adjudication of this controversy, since joinder of all members is impracticable. Furthermore, as
the damages suffered by individual Class members may be relatively small, the expense and
burden of individual litigation make it impossible for members of the Class to individually redress
the wrongs done to them. There will be no difficulty in the management of this action as a class
action.
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FIRST CAUSE OF ACTION
For Violation of §11 of the Securities Act
Against All Defendants
48. Plaintiff repeats and re-alleges each and every allegation contained above, as if fully
set forth herein.
49. This Cause of Action is brought pursuant to §11 of the Securities Act, 15 U.S.C.
§77k, on behalf of the Class, against all Defendants.
50. The Registration Statement contained untrue statements of material facts, omitted
to state other facts necessary to make the statements made not misleading, and omitted to state
material facts required to be stated therein.
51. Defendants are strictly liable to Plaintiff and the Class for the misstatements and
omissions.
52. None of the Defendants named herein made a reasonable investigation or possessed
reasonable grounds for the belief that the statements contained in the Registration Statement were
true, without omissions of any material facts, and were not misleading.
53. By reason of the conduct herein alleged, each Defendant violated or controlled a
person who violated §11 of the Securities Act.
54. Plaintiff acquired Cloopen ADS pursuant to the Registration Statement.
55. Plaintiff and the Class have sustained damages. The value of Cloopen ADS has
declined substantially subsequent to and due to Defendants’ violations.
56. At the time of their purchases of Cloopen shares, Plaintiff and other members of
the Class were without knowledge of the facts concerning the wrongful conduct alleged herein and
could not have reasonably discovered those facts prior to the disclosures herein. Less than one
year has elapsed from the time that Plaintiff discovered, or reasonably could have discovered, the
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facts upon which this Complaint is based, to the time that Plaintiff commenced this action. Less
than three years has elapsed between the time that the securities upon which this Cause of Action
is brought were offered to the public and the time Plaintiff commenced this action.
SECOND CAUSE OF ACTION
For Violation of §12(a)(2) of the Securities Act
Against All Defendants
57. Plaintiff repeats and re-alleges each and every allegation contained above, as if fully
set forth herein.
58. By means of the defective prospectus, Defendants promoted, solicited, and sold
Cloopen shares to Plaintiff and other members of the Class.
59. The prospectus for the IPO contained untrue statements of material fact, and
concealed and failed to disclose material facts, as detailed above. Defendants owed Plaintiff, and
the other members of the Class who purchased Cloopen shares pursuant to the prospectus, the duty
to make a reasonable and diligent investigation of the statements contained in the prospectus, to
ensure that such statements were true and that there was no omission to state a material fact
required to be stated, in order to make the statements contained therein not misleading.
Defendants, in the exercise of reasonable care, should have known of the misstatements and
omissions contained in the prospectus, as set forth above.
60. Plaintiff did not know, nor in the exercise of reasonable diligence could Plaintiff
have known, of the untruths and omissions contained in the prospectus at the time Plaintiff
acquired Cloopen shares.
61. By reason of the conduct alleged herein, Defendants violated §12(a)(2) of the
Securities Act. As a direct and proximate result of such violations, Plaintiff and the other members
of the Class who purchased Cloopen shares, pursuant to the prospectus, sustained substantial
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damages in connection with their purchases of the shares. Accordingly, Plaintiff and the other
members of the Class who hold the ADS issued pursuant to the prospectus, have the right to rescind
and recover the consideration paid for their shares, and hereby tender their ADS to Defendants
sued herein. Class members who have sold their ADS seek
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FILED: NEW YORK COUNTY CLERK 04/19/2021 05:52 PM INDEX NO. 652617/2021 NYSCEF DOC. NO. 2 RECEIVED NYSCEF: 04/19/2021 SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK SONNY ST. JOHN, Individually and on ) Index No.: Behalf of All Others Similarly Situated, ) ) Plaintiff, ) v. ) ) CLOOPEN GROUP HOLDING LIMITED, ) CHANGXUN SUN, YIPENG LI, KUI ) ZHOU, QINGSHENG ZHENG, ) DEMAND FOR JURY TRIAL XIAODONG LIANG, ZI YANG, MING ) LIAO, FENG ZHU, LOK YAN HUI, ) JIANHONG ZHOU, CHING CHIU, ) COGENCY GLOBAL INC., COLLEEN A. ) DEVRIES, GOLDMAN SACHS (ASIA) ) L.L.C, CITIGROUP GLOBAL MARKETS ) INC., CHINA INTERNATIONAL ) CAPITAL CORPORATION HONG KONG ) SECURITIES LIMITED, TIGER BROKERS ) (NZ) LIMITED, and FUTU, INC., ) ) Defendants. ) ) COMPLAINT FOR VIOLATIONS OF THE SECURITIES ACT OF 1933 Plaintiff Sonny St. John (“Plaintiff”), individually and on behalf of all others similarly situated, by Plaintiff’s undersigned attorneys, alleges the following based upon personal knowledge as to Plaintiff and Plaintiff’s own acts, and upon information and belief as to all other matters, based on the investigation conducted by and through Plaintiff’s attorneys, which included, among other things, a review of U.S. Securities and Exchange Commission (“SEC”) filings by Cloopen Group Holding Limited (“Cloopen” or the “Company”), articles and other publications, including media and analyst reports about the Company and Company press releases. Plaintiff believes that substantial additional evidentiary support will exist for the allegations set forth herein. 1 of 19 FILED: NEW YORK COUNTY CLERK 04/19/2021 05:52 PM INDEX NO. 652617/2021 NYSCEF DOC. NO. 2 RECEIVED NYSCEF: 04/19/2021 SUMMARY OF THE ACTION 1. Plaintiff brings this securities class action on behalf of persons who purchased, or otherwise acquired, Cloopen American Depositary Shares (“ADS”) pursuant or traceable to the F- 1 registration statement (including all amendments made thereto) and related prospectus on Form 424B4 (collectively, the “Registration Statement”) issued in connection with Cloopen’s February 2021 initial public stock offering (the “IPO” or “Offering”). 2. This action asserts non-fraud, strict liability claims under §§11, 12, and 15 of the Securities Act of 1933 (“1933 Act” or “Securities Act”), against Cloopen, certain Cloopen officers and directors, the underwriters of the IPO, and Cloopen’s U.S. representatives (collectively, the “Defendants”). 3. Cloopen purports to be the largest multi-capability cloud-based communications solutions provider in China, and the only provider in China that offers a full suite of cloud-based communications solutions covering communications platform as a service, or CPaasS, cloud-based contact centers, or cloud-based CC, and cloud-based unified communications and collaborations, or cloud-based UC&C. Cloopen conducted the IPO in New York, and its ADS are listed on the New York Stock Exchange (NYSE) under the ticker symbol “RAAS.” 4. In February 2021, as part of Cloopen’s IPO, Defendants issued approximately 20 million ADS to the investing public at $16 per ADS, all pursuant to the Registration Statement. 5. The Registration Statement contained untrue statements of material fact and omitted to state material facts both required by governing regulations and necessary to make the statements made not misleading. Specifically, the Registration Statement misrepresented and omitted Cloopen’s then-existing financial situation, including its swelling net losses, which had 2 2 of 19 FILED: NEW YORK COUNTY CLERK 04/19/2021 05:52 PM INDEX NO. 652617/2021 NYSCEF DOC. NO. 2 RECEIVED NYSCEF: 04/19/2021 already manifested at the time of the IPO. For example, the Registration Statement stated as follows: In 2018 and 2019, we incurred net loss of RMB155.5 million and RMB183.5 million (US$27.0 million), respectively. In the nine months ended September 30, 2019 and 2020, we incurred net loss of RMB129.6 million and RMB203.7 million (US$30.0 million), respectively. We estimate that the year-on-year growth of our revenues and increase of costs and expenses in the fourth quarter of 2020 to be slightly below those of the first nine months of 2020 as compared with the first nine months of 2019. [Emphasis added.] 6. In truth, by the time of the IPO, Cloopen knew (or had information making it foreseeable to know) that its fourth quarter 2020 net losses and operating expenses were severely above these purported markers. Indeed, as was later revealed, Cloopen’s net loss for the fourth quarter of 2020 was RMB305.4 million, US$46.8 million, representing a 466.9% increase year- over-year. Likewise, Cloopen’s operating expenses for the same period ballooned 30% due to, in substantial part, a 59.2% increase in the Company’s General and Administrative (“G&A”) expenses related to an increase in Cloopen’s provision for doubtful accounts, resulting from increased accounts receivables. Cloopen’s historical net losses and G&A expenses, therefore, were drastically different than what the Company was facing during the very quarter in which it was going public. Because the Registration Statement did not mention, much less adequately warn, about Cloopen’s swelling losses and, as a result, poor financial condition before the IPO, Plaintiff and other ADS purchasers were unable to adequately assess the value of the shares offered in connection with the IPO, and thus purchased their ADS without material information. 7. This failure to disclose was demonstrably material, given that a month after the IPO, when Cloopen released its fourth quarter and full-year 2020 financial results, its stock 3 3 of 19 FILED: NEW YORK COUNTY CLERK 04/19/2021 05:52 PM INDEX NO. 652617/2021 NYSCEF DOC. NO. 2 RECEIVED NYSCEF: 04/19/2021 cratered, falling 18.5% from $14.42 per ADS on March 25, 2021 to close at $11.75 per ADS on March 26, 2021. All told, investors lost tens of millions of dollars. 8. Conversely, with material omissions and misrepresentations in the Registration Statement, Defendants went forward with the IPO, raising approximately $368 million in gross proceeds after the Underwriter Defendants (defined below) exercised their option to purchase additional ADS in full. JURISDICTION AND VENUE 9. This Court has original subject matter jurisdiction under the New York Constitution, Article VI, §7(a). Removal is barred by §22 of the Securities Act. 10. This Court has personal jurisdiction, and venue is proper under the New York Civil Practice Laws and Rules (“CPLR”), because Defendants reside or are headquartered in this county; Defendants and their agents affirmatively solicited and sold the subject securities and offered the Registration Statement to investors in New York and this county; those contacts have a substantial connection to the claims alleged herein; and the securities at issue are listed and traded on the NYSE, which is located in this county. PARTIES 11. Plaintiff purchased Cloopen ADS pursuant or traceable to the IPO and was damaged thereby. 12. Defendant Cloopen is a leading multi-capability cloud-based communications solution provider in China that offers a full suite of cloud-based communications solutions, Cloopen conducted the IPO in New York, and its ADS are listed on the NYSE under the ticker symbol “RAAS.” 4 4 of 19 FILED: NEW YORK COUNTY CLERK 04/19/2021 05:52 PM INDEX NO. 652617/2021 NYSCEF DOC. NO. 2 RECEIVED NYSCEF: 04/19/2021 13. Defendant Cogency Global Inc. (“Cogency Global”) was Cloopen’s authorized U.S. representative for purposes of the IPO. Defendant Colleen A. DeVries (“DeVries”), who signed the Registration Statement, is an employee of Defendant Cogency Global. As a result, Defendant Cogency Global is liable for the securities law violations committed by Defendant DeVries, in its capacity as employer and as a control person under the Securities Act. 14. Defendant Changxun Sun (“Sun”) founded Cloopen and was, at the time of the IPO, Cloopen’s Chief Executive Officer (“CEO”) and Chairman of Cloopen’s Board of Directors (the “Board”). Defendant Sun reviewed, contributed to, and signed the Registration Statement. 15. Defendant Yipeng Li (“Li”) was, at the time of the IPO, Cloopen’s Chief Financial Officer (“CFO”) and a Director on Cloopen’s Board. Defendant Li reviewed, contributed to, and signed the Registration Statement. 16. Defendant Kui Zhou (“Zhou”) was, at the time of the IPO, a Director on Cloopen’s Board. Defendant Zhou reviewed, contributed to, and signed the Registration Statement. 17. Defendant Qingsheng Zheng (“Zheng”) was, at the time of the IPO, a Director on Cloopen’s Board. Defendant Zheng reviewed, contributed to, and signed the Registration Statement. 18. Defendant Xiaodong Liang (“Liang”) was, at the time of the IPO, a Director on Cloopen’s Board. Defendant Liang reviewed, contributed to, and signed the Registration Statement. 19. Defendant Zi Yang (“Yang”) was, at the time of the IPO, a Director on Cloopen’s Board. Defendant Yang reviewed, contributed to, and signed the Registration Statement. 20. Defendant Ming Liao (“Liao”) was, at the time of the IPO, a Director on Cloopen’s Board. Defendant Liao reviewed, contributed to, and signed the Registration Statement. 5 5 of 19 FILED: NEW YORK COUNTY CLERK 04/19/2021 05:52 PM INDEX NO. 652617/2021 NYSCEF DOC. NO. 2 RECEIVED NYSCEF: 04/19/2021 21. Defendant Feng Zhu (“Zhu”) was, at the time of the IPO, a Director on Cloopen’s Board. Defendant Zhu reviewed, contributed to, and signed the Registration Statement. 22. Defendant Lok Yan Hui (“Hui”) was, at the time of the IPO, a Director on Cloopen’s Board. Defendant Hui reviewed, contributed to, and signed the Registration Statement. 23. Defendant Jianhong Zhou (“J. Zhou”) was, at the time of the IPO, a Director on Cloopen’s Board. Defendant J. Zhou reviewed, contributed to, and signed the Registration Statement. 24. Defendant Ching Chiu (“Chiu”) was, at the time of the IPO, a Director on Cloopen’s Board. Defendant Chiu reviewed, contributed to, and signed the Registration Statement. 25. Defendant DeVries served as Senior Vice President on behalf of Defendant Cogency Global, the designated U.S. Representative of Defendant Cloopen, and reviewed, contributed to, and signed the Registration Statement. 26. Defendants Sun, Li, Zhou, Zheng, Liang, Yang, Liao, Zhu, Hui, J. Zhou, Chiu, and DeVries are collectively referred to herein as the “Individual Defendants.” The Individual Defendants each signed the Registration Statement, solicited the investing public to purchase securities issued pursuant thereto, hired and assisted the underwriters, planned and contributed to the IPO and Registration Statement, and attended road shows and other promotions to meet with and present favorable information to potential Cloopen investors, all motivated by their own, and the Company’s, financial interests. 27. Defendants Goldman Sachs (Asia) L.L.C., Citigroup Global Markets Inc. (“Citigroup”), China International Capital Corporation Hong Kong Securities Limited, Tiger Brokers (NZ) Limited, and Futu, Inc., are financial services companies that acted as underwriters 6 6 of 19 FILED: NEW YORK COUNTY CLERK 04/19/2021 05:52 PM INDEX NO. 652617/2021 NYSCEF DOC. NO. 2 RECEIVED NYSCEF: 04/19/2021 for Cloopen’s IPO, helping to draft and disseminate the Registration Statement and solicit investors to purchase Cloopen securities issued pursuant thereto. These Defendants are referred to herein as the “Underwriter Defendants.” 28. Pursuant to the Securities Act, the Underwriter Defendants are liable for the false and misleading statements in the Registration Statement as follows: a. The Underwriter Defendants are investment banking houses that specialize, inter alia, in underwriting public offerings of securities. They served as the underwriters of the IPO and received tens of millions of dollars in fees (collectively), for their service. The Underwriter Defendants arranged a multi-city road show prior to the IPO, during which they, and representatives from Cloopen, met with potential investors and presented highly favorable information about the Company, its operations and its financial prospects. b. The Underwriter Defendants also demanded and obtained an agreement from Cloopen and the Individual Defendants, that Cloopen would indemnify and hold the Underwriter Defendants harmless from any liability under the federal securities laws. They also made certain that Cloopen had purchased millions of dollars in directors’ and officers’ liability insurance. c. Representatives of the Underwriter Defendants also assisted Cloopen and the Individual Defendants in planning the IPO, and purportedly conducted an adequate and reasonable investigation into the business and operations of Cloopen, an undertaking known as a “due diligence” investigation. The due diligence investigation was required of the Underwriter Defendants in order to engage in the IPO. During the course of their “due diligence,” the Underwriter Defendants had continual access to internal, confidential, 7 7 of 19 FILED: NEW YORK COUNTY CLERK 04/19/2021 05:52 PM INDEX NO. 652617/2021 NYSCEF DOC. NO. 2 RECEIVED NYSCEF: 04/19/2021 current corporate information concerning Cloopen’s most up-to-date operational and financial results and prospects. d. In addition to availing themselves of virtually unlimited access to internal corporate documents, agents of the Underwriter Defendants met with Cloopen’s lawyers, management and top executives and engaged in “drafting sessions” ahead of the IPO. During these sessions, understandings were reached as to: (i) the strategy to best accomplish the IPO; (ii) the terms of the IPO, including the price at which Cloopen ADS would be sold; (iii) the language to be used in the Registration Statement; (iv) what disclosures about Cloopen would be made in the Registration Statement; and (v) what responses would be made to the SEC, in connection with its review of the Registration Statement. As a result of those constant contacts and communications between the Underwriter Defendants’ representatives and Cloopen’s management and top executives, the Underwriter Defendants knew of, or in the exercise of reasonable care should have known of, Cloopen’s existing problems as detailed herein. e. Finally, the Underwriter Defendants caused the Registration Statement to be filed with the SEC and declared effective in connection with the offers and sales of securities registered thereby, including those to Plaintiff and the other members of the Class. DEFENDANTS’ FALSE AND MISLEADING REGISTRATION STATEMENT AND PROSPECTUS 29. On November 13, 2020, Cloopen filed with the SEC, a confidential draft registration statement on Form F-1, which would be used for the IPO following a series of amendments in response to SEC comments. 8 8 of 19 FILED: NEW YORK COUNTY CLERK 04/19/2021 05:52 PM INDEX NO. 652617/2021 NYSCEF DOC. NO. 2 RECEIVED NYSCEF: 04/19/2021 30. On February 3, 2021, Cloopen filed its final amendment to the Registration Statement, which registered 20 million Cloopen ADS for public sale. The SEC declared the Registration Statement effective on February 8, 2021. On February 9, 2021, Defendants priced the IPO at $16 per ADS and filed the final prospectus for the IPO, which forms part of the Registration Statement. Through the IPO, Defendants issued and sold approximately 20 million Cloopen ADS, all pursuant to the Registration Statement. 31. The Registration Statement contained untrue statements of material fact and omitted to state material facts, both required by governing regulations and necessary to make the statements made not misleading. 32. In particular, the Registration Statement misrepresents Cloopen’s then-existing financial condition. For example, Cloopen provides prospective investors its net losses from 2018, 2019 and for the nine months ending September 2020, before then claiming that its fourth quarter 2020—representing the period ending December 31, 2020 (i.e., the period before the IPO)—year over year increase of costs and expenses will be “slightly below” those of the first nine months of 2020: In 2018 and 2019, we incurred net loss of RMB155.5 million and RMB183.5 million (US$27.0 million), respectively. In the nine months ended September 30, 2019 and 2020, we incurred net loss of RMB129.6 million and RMB203.7 million (US$30.0 million), respectively. We estimate that the year-on-year growth of our revenues and increase of costs and expenses in the fourth quarter of 2020 to be slightly below those of the first nine months of 2020 as compared with the first nine months of 2019. [Emphasis added]. 33. Relatedly, the Registration Statement repeatedly provides Cloopen’s operating expenses, including its general and administrative expenses, for the periods 2018, 2019 and the 9 9 of 19 FILED: NEW YORK COUNTY CLERK 04/19/2021 05:52 PM INDEX NO. 652617/2021 NYSCEF DOC. NO. 2 RECEIVED NYSCEF: 04/19/2021 nine months ending September 2020, before then claiming that it can adjust the pace of its business expansion and “control” operating expenses “when necessary”: Our general and administrative expenses were RMB92.4 million, RMB108.3 million (US$16.0 million), RMB66.2 million and RMB138.8 million (US$20.4 million) in 2018, 2019 and the nine months ended September 30, 2019 and 2020, respectively, primarily representing (1) compensation paid to our administrative staff and management team, including share-based compensation expenses, (2) professional services fees, rentals and certain administrative expenses, and (3) provision for doubtful accounts. 34. In truth, however, Cloopen’s fourth quarter 2020 net loss was substantially larger—to the tune of $16.8 million, or nearly 500% when compared to the same period the year prior—because of substantial increases to the fair value of its warrant liabilities issued and/or exercised before the IPO. So too was Cloopen’s operating expenses for the fourth quarter of 2020, which increased 30% because of, in substantial part, an increase in its provision for doubtful accounts resulting from increased accounts receivable, leading the Company’s G&A expenses to increase over 59% year over year. Because the Registration Statement did not disclose the truth about Cloopen’s swelling net losses and G&A expenses, and the impact both were already having on the Company’s financial health, Plaintiff and other ADS purchasers had no opportunity to adequately assess the value of the shares offered in connection with the IPO. 35. Defendants were required to disclose this material information in the Registration Statement, for at least three independent reasons. First, SEC Regulation S-K, 17 C.F.R. §229.303 (“Item 303”), required disclosure of any known events or uncertainties that, at the time of the IPO, had caused, or were reasonably likely to cause, Cloopen’s disclosed financial information not to be indicative of future operating results. At the time of the IPO, Cloopen knew, or in the exercise of reasonable care should have known, that its net losses from earlier periods were not indicative of its fourth quarter net loss, which would be drastically higher than any other reporting period 10 10 of 19 FILED: NEW YORK COUNTY CLERK 04/19/2021 05:52 PM INDEX NO. 652617/2021 NYSCEF DOC. NO. 2 RECEIVED NYSCEF: 04/19/2021 because of, among other things, substantial changes to the fair value of its warrant liabilities issued and/or exercised before the IPO. Likewise, Cloopen knew, or in the exercise of reasonable care should have known, that its historical G&A expenses were not at all representative of its current fourth quarter 2020 G&A expenses because Cloopen had materially increased its provision for doubtful accounts in response to the COVID-19 Pandemic, then-ravaging many small-to medium- sized customers in China, Cloopen’s primary marketplace. These undisclosed, materially negative events and trends were likely to (and in fact did) materially and adversely affect Cloopen’s financial state, and rendered the disclosed results and trends in the Registration Statement misleading and not indicative of Cloopen’s future operating results. 36. Second, SEC Regulation S-K, 17 C.F.R. §229.105 (“Item 105”) required, in the “Risk Factor” section of the Registration Statement, a discussion of the most significant factors that make the offering risky or speculative, and that each risk factor adequately describe the risk. Cloopen’s discussions of risk factors did not even mention, much less adequately describe the risk posed by, Cloopen’s rising net losses and operating expenses, the negative impact these were already having on Cloopen’s business, the other already occurring negative results and trends, nor the likely and consequent materially adverse effects on the Company’s future results, share price, and prospects. 37. Third, Defendants’ failure to disclose Cloopen’s mounting net losses and operating expenses, among other already occurring negative results and trends, much less the likely and consequent materially adverse effects on the Company’s future results, share price, and prospects; rendered false and misleading the Registration Statement’s many references to known risks that, “if” occurring “might” or “could” affect the Company. These “risks” had already materialized at the time of the IPO. 11 11 of 19 FILED: NEW YORK COUNTY CLERK 04/19/2021 05:52 PM INDEX NO. 652617/2021 NYSCEF DOC. NO. 2 RECEIVED NYSCEF: 04/19/2021 38. Nonetheless, Defendants went forward with the IPO, with the foregoing misrepresentations and omissions in the Registration Statement. With these misrepresentations and omissions, the IPO was extremely lucrative for Defendants, who raised approximately $368 million in gross proceeds. 39. But when the truth of Defendants’ misrepresentations and omissions began to emerge, the price of Cloopen’s shares suffered sharp declines. For example, on March 26, 2021, in a report filed with the SEC on Form 6-K, Defendants released the Company’s fourth quarter and fiscal year 2020 financial results, stating in relevant part: Fourth Quarter 2020 Highlights […] Net loss was RMB305.4 million (US$46.8 million), representing a $466.9% increase year-over-year. * * * Operating Expenses In the fourth quarter of 2020, operating expenses were RMB180.4 million (US$27.6 million), representing a 30.0% increase from RMB138.8 million in the fourth quarter of 2019. […] General and administrative expenses increased by 59.2% to RMB67.1 million (US$10.3 million) in the fourth quarter of 2020 from RMB42.1 million in the fourth quarter of 2019, primarily due to (1) an increase in share-based compensation expenses relating to certain restricted shares of the Company's founders under the share restriction agreements and waiver of subscription receivable due from Mr. Changxun Sun, (2) an increase in the provision for doubtful accounts resulting from increased accounts receivables, and (3) an increase in professional services fees relating to the preparation for the Company's IPO. [Emphasis added]. 12 12 of 19 FILED: NEW YORK COUNTY CLERK 04/19/2021 05:52 PM INDEX NO. 652617/2021 NYSCEF DOC. NO. 2 RECEIVED NYSCEF: 04/19/2021 * * * Net Loss Net loss for the fourth quarter of 2020 was RMB305.4 million (US$46.8 million), compared with RMB53.9 million in the fourth quarter of 2019 with the increase primarily driven by increases in non-cash items of RMB240.1 million (US$36.8 million), including change in fair value of warrant liabilities of RMB224.8 million (US$34.4 million) and share-based compensation of RMB15.4 million (US$2.4 million). [Emphasis added]. 40. On this news, Cloopen’s shares declined 18.5%, falling from $14.42 per ADS on March 25, 2021 to close at $11.75 per ADS on March 26, 2021. 41. By the commencement of this action, Cloopen’s shares traded as low as $10.28 per ADS, a nearly 36% decline from the offering price. As a result, investors have lost tens of millions of dollars. CLASS ACTION ALLEGATIONS 42. Plaintiff brings this action as a class action on behalf of all those who purchased Cloopen ADS pursuant or traceable to the Registration Statement (the “Class”). Excluded from the Class are Defendants and their families, the officers and directors and affiliates of Defendants, at all relevant times, members of their immediate families and their legal representatives, heirs, successors or assigns and any entity in which Defendants have, or had, a controlling interest. 43. The members of the Class are so numerous that joinder of all members is impracticable. While the exact number of Class members is unknown to Plaintiff at this time and can only be ascertained through appropriate discovery, Plaintiff believes that there are at least thousands of members in the proposed Class. Record owners and other members of the Class may be identified from records maintained by Cloopen or its transfer agent, and may be notified of the 13 13 of 19 FILED: NEW YORK COUNTY CLERK 04/19/2021 05:52 PM INDEX NO. 652617/2021 NYSCEF DOC. NO. 2 RECEIVED NYSCEF: 04/19/2021 pendency of this action by mail, using the form of notice similar to that customarily used in securities class actions. 44. Plaintiff’s claims are typical of the claims of the members of the Class, as all members of the Class are similarly affected by Defendants’ wrongful conduct, in violation of federal law, that is complained of herein. 45. Plaintiff will fairly and adequately protect the interests of the members of the Class and has retained counsel competent and experienced in class and securities litigation. 46. Common questions of law and fact exist as to all members of the Class and predominate over any questions solely affecting individual members of the Class. Among the questions of law and fact common to the Class are: (a) whether Defendants violated the Securities Act; (b) whether the Registration Statement contained false or misleading statements of material fact and omitted material information required to be stated therein; and (c) to what extent the members of the Class have sustained damages and the proper measure of damages. 47. A class action is superior to all other available methods for the fair and efficient adjudication of this controversy, since joinder of all members is impracticable. Furthermore, as the damages suffered by individual Class members may be relatively small, the expense and burden of individual litigation make it impossible for members of the Class to individually redress the wrongs done to them. There will be no difficulty in the management of this action as a class action. 14 14 of 19 FILED: NEW YORK COUNTY CLERK 04/19/2021 05:52 PM INDEX NO. 652617/2021 NYSCEF DOC. NO. 2 RECEIVED NYSCEF: 04/19/2021 FIRST CAUSE OF ACTION For Violation of §11 of the Securities Act Against All Defendants 48. Plaintiff repeats and re-alleges each and every allegation contained above, as if fully set forth herein. 49. This Cause of Action is brought pursuant to §11 of the Securities Act, 15 U.S.C. §77k, on behalf of the Class, against all Defendants. 50. The Registration Statement contained untrue statements of material facts, omitted to state other facts necessary to make the statements made not misleading, and omitted to state material facts required to be stated therein. 51. Defendants are strictly liable to Plaintiff and the Class for the misstatements and omissions. 52. None of the Defendants named herein made a reasonable investigation or possessed reasonable grounds for the belief that the statements contained in the Registration Statement were true, without omissions of any material facts, and were not misleading. 53. By reason of the conduct herein alleged, each Defendant violated or controlled a person who violated §11 of the Securities Act. 54. Plaintiff acquired Cloopen ADS pursuant to the Registration Statement. 55. Plaintiff and the Class have sustained damages. The value of Cloopen ADS has declined substantially subsequent to and due to Defendants’ violations. 56. At the time of their purchases of Cloopen shares, Plaintiff and other members of the Class were without knowledge of the facts concerning the wrongful conduct alleged herein and could not have reasonably discovered those facts prior to the disclosures herein. Less than one year has elapsed from the time that Plaintiff discovered, or reasonably could have discovered, the 15 15 of 19 FILED: NEW YORK COUNTY CLERK 04/19/2021 05:52 PM INDEX NO. 652617/2021 NYSCEF DOC. NO. 2 RECEIVED NYSCEF: 04/19/2021 facts upon which this Complaint is based, to the time that Plaintiff commenced this action. Less than three years has elapsed between the time that the securities upon which this Cause of Action is brought were offered to the public and the time Plaintiff commenced this action. SECOND CAUSE OF ACTION For Violation of §12(a)(2) of the Securities Act Against All Defendants 57. Plaintiff repeats and re-alleges each and every allegation contained above, as if fully set forth herein. 58. By means of the defective prospectus, Defendants promoted, solicited, and sold Cloopen shares to Plaintiff and other members of the Class. 59. The prospectus for the IPO contained untrue statements of material fact, and concealed and failed to disclose material facts, as detailed above. Defendants owed Plaintiff, and the other members of the Class who purchased Cloopen shares pursuant to the prospectus, the duty to make a reasonable and diligent investigation of the statements contained in the prospectus, to ensure that such statements were true and that there was no omission to state a material fact required to be stated, in order to make the statements contained therein not misleading. Defendants, in the exercise of reasonable care, should have known of the misstatements and omissions contained in the prospectus, as set forth above. 60. Plaintiff did not know, nor in the exercise of reasonable diligence could Plaintiff have known, of the untruths and omissions contained in the prospectus at the time Plaintiff acquired Cloopen shares. 61. By reason of the conduct alleged herein, Defendants violated §12(a)(2) of the Securities Act. As a direct and proximate result of such violations, Plaintiff and the other members of the Class who purchased Cloopen shares, pursuant to the prospectus, sustained substantial 16 16 of 19 FILED: NEW YORK COUNTY CLERK 04/19/2021 05:52 PM INDEX NO. 652617/2021 NYSCEF DOC. NO. 2 RECEIVED NYSCEF: 04/19/2021 damages in connection with their purchases of the shares. Accordingly, Plaintiff and the other members of the Class who hold the ADS issued pursuant to the prospectus, have the right to rescind and recover the consideration paid for their shares, and hereby tender their ADS to Defendants sued herein. Class members who have sold their ADS seek