Shein has disclosed that the Federal Trade Commission (FTC) is investigating its U.S. operations as the company gears up for its initial public offering (IPO) in Hong Kong. In formal filings linked to the IPO, the fast-fashion retailer revealed the probe but did not specify the nature of the investigation. Shein stated it is cooperating with the FTC and acknowledged that while a settlement might be possible, the final outcome and timing remain uncertain. The company also warned that any resolution could potentially involve substantial financial penalties that might impact its financial performance.

The FTC, the primary U.S. agency tasked with protecting consumers from unfair and deceptive practices, has previously targeted companies for issues like hidden fees, privacy breaches, and misleading marketing strategies. Among the FTC’s areas of concern are so-called "dark patterns," which are design tactics meant to manipulate consumers, such as pre-checked boxes and confusing cancellation policies. Shein is known for using strategies like countdown timers and flash sales on its app to create urgency and boost purchases, which have been cited as examples of dark patterns by the FTC in past reports.

Shein’s rise to global prominence was fueled by the Covid-19 pandemic, but the company has faced significant political and regulatory hurdles regarding its business practices. After attempts to go public in the United States faltered amid political pushback, Shein shifted its IPO plans first to London and then to Hong Kong, where its listing has recently been approved. Despite this progress, the company has yet to announce when trading will officially commence.

The FTC declined to comment on the investigation, and Shein did not respond to CNBC’s request for additional information. The forthcoming IPO in Hong Kong represents a critical milestone for Shein as it seeks to solidify its position in the global fashion market despite regulatory scrutiny and questions about its business conduct. The investigation underscores the increasing regulatory attention fast-fashion companies face regarding consumer protection and marketing tactics.