Shein says its under investigation by the Federal Trade Commission as it prepares for Hong Kong IPO

Shein’s U.S. business is under investigation by the Federal Trade Commission, the fast-fashion giant revealed in documents connected to its upcoming Hong Kong initial public offering. 

In the filing, the Chinese-founded company didn’t say what the FTC is investigating, but the disclosure appears to be the first time the probe was made public. 

“We are actively cooperating with the FTC. … Although it is possible that we may reach a settlement with the FTC in connection with the investigation, we currently cannot predict the probable outcome of the investigation and the timing of such outcome, and we cannot rule out that such outcome could occur in the near term,” Shein wrote in the document, filed with the entity that operates the Hong Kong Stock Exchange.

“The outcome of the investigation, whether in settlement or otherwise, may require us to make significant monetary payments that could have a material adverse effect on our financial condition and results of operations,” the company added.

The FTC declined to comment. Shein didn’t return a request for comment from CNBC seeking additional information.

The FTC is the U.S.’ leading consumer protection agency with a mission to stop “deceptive or unfair business practices.” It has previously investigated companies for things like suppressing bad reviews, hidden fees or misleading prices, shipping and refund practices, and issues related to privacy and data, among many other issues.  

One of the FTC’s areas of focus is “dark patterns,” which it describes as “design tricks and psychological tactics, such as pre-checked boxes, hard-to-find-and read disclosures, and confusing cancellation policies” to make consumers more willing to give up their money or data.

Shein is known to offer countdown timers, gamified discounts and flash sales, among other tactics, on its app to create a sense of urgency and get consumers to spend. 

In a 2022 report explaining dark practices, the FTC referenced countdown timers in general as one example of a common dark pattern.

Shein, which rose to global prominence after the Covid-19 pandemic, previously tried to go public in the U.S., but turned its ambitions to London and ultimately Hong Kong after facing extreme political pushback over its business practices. 

Its listing in Hong Kong was recently approved, but it’s unclear when it will start trading.