Shein discloses it’s under investigation by the FTC

Shein’s business in the US is under investigation by the fast fashion giant’s Federal Trade Commission, which was revealed in documents linked to its upcoming Hong Kong initial public offering.

In the filing, the China-based company did not say what the FTC was investigating, but the statement appears to be the first time the investigation has been made public.

“We are actively cooperating with the FTC. … While it is possible that we may reach an agreement with the FTC in connection with the investigation, we cannot predict at this time the likely outcome of the investigation and the timing of such outcome, and cannot rule out that such an outcome may occur in the near term,” Shein said in the document filed with the agency that operates the Hong Kong Stock Exchange. he wrote.

“The outcome of the investigation, whether 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 did not respond to CNBC’s request for comment seeking additional information.

The FTC is the leading U.S. consumer protection agency with a mission to stop “deceptive or unfair business practices.” He has previously investigated companies on issues such as blocking bad reviews, hidden fees or misleading prices, shipping and refund practices, privacy and data-related issues, and many other topics.

One of the FTC’s areas of focus is “dark patterns,” which it defines as “design tricks and psychological tactics like pre-checked boxes, hard-to-find and hard-to-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 on its app, among other tactics, to create a sense of urgency and get consumers to spend.

In the 2022 report revealing shady practicesThe FTC referred to countdown timers in general as an example of a common dark pattern.

Shein, who rose to global fame following the Covid-19 outbreak, had previously attempted to go public in the US, but after facing extreme political pressure regarding his business practices, he turned his sights to London and eventually Hong Kong.

Its listing in Hong Kong was recently approved but it is unclear when it will begin trading.