The SEC’s Settlement with Cloopen Demonstrates the Significant Benefits of Prompt Cooperation

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On February 6, 2024, the US Securities and Exchange Commission ("SEC") announced that it settled accounting fraud charges against Cloopen Group Holding Limited ("Cloopen" or the "Company"), a cloud-based communications provider in China.1 The SEC did not impose civil money penalties against Cloopen because the Company self-reported its accounting issues, cooperated extensively with the SEC, and undertook prompt remedial measures, which included terminating employees involved in the misconduct, strengthening its internal accounting controls, and clawing back compensation from senior officers.2 The Director of the Division of Enforcement ("Enforcement Director") emphasized that this action demonstrates the "real benefits to companies that self-report their potential securities law violations, assist during [the] investigation, and undertake remedial measures."3


Cloopen does not operate in the United States, but the Company's American depositary shares formerly traded on the New York Stock Exchange. From May 2021 through February 2022, two senior managers of Cloopen engaged in a fraudulent scheme to prematurely recognize revenue on service contracts before the Company had started or completed the work. As a result of the misconduct, the Company misstated its revenue for the second and third quarters of fiscal year 2021 by four percent (4%) and six percent (6%) respectively.

The SEC's Order found that the Company violated certain antifraud, reporting, internal controls, and books and records provisions. Without admitting or denying the SEC's findings, the Company agreed to cease and desist from further violations of those provisions.

Lessons for Public Companies

In the SEC's press release, the Enforcement Director emphasized that the following factors influenced the SEC's decision and serve as examples for companies seeking to avoid paying civil money penalties:

  • Companies should report misconduct as soon as possible. Within a few days of commencing an internal investigation, and before taking significant steps to investigate, Cloopen self-reported the misconduct to the SEC.
  • Companies should provide substantial cooperation throughout the investigation. Cloopen provided detailed explanations of the fraudulent transactions and their impact. The Company also translated and produced key documents originally written in Chinese and summarized the interviews of witnesses located in China. The SEC found that Cloopen's cooperation "substantially advanced the efficiency of the staff's investigation" and conserved the SEC's resources.
  • Companies should undertake prompt remedial measures. Shortly after discovering the misconduct, Cloopen formed an independent special committee of its Board of Directors to investigate the misconduct. The Company terminated the senior managers who perpetuated the accounting fraud and disciplined other employees involved in the misconduct. The Company clawed back the bonus compensation paid to the CEO and CFO for the relevant time period. Cloopen also took a number of steps to strengthen its internal accounting controls. The Company reorganized and removed departments involved in the misconduct, and trained executives and employees on accounting policies and best practices. The Company also recruited personnel with expertise in US Generally Accepted Accounting Principles.

To obtain cooperation credit, it is also critical that foreign private issuers understand and navigate US authorities' requirements and local law compliance. Cloopen was subject to cross-border data controls in China that restrict the transfer of data outside of China. Notwithstanding this, Cloopen was able to produce documents to the SEC, provide the SEC with detailed explanations of the transactions at issue, and summarize interviews of witnesses in China. It is essential to balance the expectations of authorities in different jurisdictions.

Elisha Mvundura (White & Case, Law Clerk, New York) co-authored this publication.

1 White & Case LLP represented Cloopen's independent special committee of the Board of Directors in connection with its independent internal investigation. See Press Release, Cloopen Grp. Holding Ltd., Cloopen Announces the Substantial Completion of the Independent Internal Investigation (Sept. 6, 2022),
2 In Re Cloopen Grp. Holding Ltd., Exchange Act Release No. 99483 (Feb. 5, 2024).
3 Press Release, U.S. Sec. & Exch. Comm'n., SEC Charges China-Based Tech Company Cloopen Group with Accounting Fraud (Feb. 6, 2024),

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