China-founded online retailer Shein disclosed a Federal Trade Commission (FTC) investigation that could soon require significant payments as its U.S. sales fell 14.3 percent and it moved toward a Hong Kong stock listing after earlier efforts in New York and London stalled.
The investigation was among a series of legal and regulatory pressures detailed in Shein’s draft Hong Kong listing document, offering a rare look inside the privately held retailer whose low-priced clothing and other goods reach millions of American consumers.
Shein’s U.S. revenue fell from $2.4 billion to $2 billion during the first three months of 2026.
The company said U.S. tariff changes hurt sales during the second half of 2025 and the first quarter of this year.
The company also reported a $99 million quarterly net loss, compared with a $395 million profit a year earlier.
Operating income fell by more than one-quarter, while fulfillment and marketing costs increased.
The filing also disclosed investigations in Europe involving illegal products, online design practices, and transfers of European customer data to China.
In the United States, Texas has sued Shein over alleged toxic products and data privacy practices, while a proposed California class action accuses the company of using deceptive reference prices.
Shein declined to say whether the U.S. cases or the FTC investigation were covered by its approximately $80 million provision for ongoing legal and regulatory proceedings.
FTC Investigation Could Bring Payments
Shein said the FTC has been investigating its U.S. business operations and that the company is cooperating with the agency.
The filing does not identify the subject of the investigation.
Although Shein said it could not predict the outcome or timing, it said it “cannot rule out” a near-term resolution.
A settlement or other outcome could require “significant monetary payments” and materially affect its financial condition and operating results, according to the filing.
The FTC declined to comment on questions from The Epoch Times.
As of March 31, Shein had recorded approximately $80 million in aggregate provisions for ongoing legal and regulatory proceedings.
Boyi Zhang of Wonderful Sky Financial Group, Shein’s financial public-relations representative, said the amount included intellectual property and consumer protection matters.
The company declined to say whether the provision included the FTC inquiry, the Texas case, or the proposed California class action.
“We cannot provide details on specific cases beyond the general provision for claims arising in the ordinary course of business,” Zhang said in an email.
Shein said it did not expect unresolved matters to harm its financial position. Its filing also said final payments could be materially higher or lower than the provisions recorded.
US Sales Fall After Tariff Changes
Shein’s global revenue increased 1.1 percent to $9.05 billion during the quarter, but U.S. revenue fell 14.3 percent.
The Trump administration ended duty-free de minimis treatment for low-value shipments from China in May 2025.
The policy had allowed Shein and other online sellers to ship large numbers of inexpensive packages directly to American customers without the ordinary duties applied to larger commercial shipments.
Shein said tariff changes increased fulfillment costs and hurt its U.S. sales.
Fulfillment expenses rose from $3.83 billion to $4.32 billion, increasing from 42.8 percent to 47.7 percent of revenue. Marketing expenses climbed 31.4 percent to $1.43 billion.
The company said it was increasing locally held inventory and expanding partnerships with local fulfillment companies to reduce its exposure to cross-border duties.
Shein remained profitable at the operating level, earning $258 million.
Its net loss was driven mainly by a $328 million fair-value loss on convertible redeemable preferred shares.
Shein also recorded a $72 million foreign exchange loss, compared with a $47 million exchange gain a year earlier.
For all of 2025, Shein reported $41.85 billion in revenue and $2.06 billion in net income.
Texas Alleges Toxic Products, Data Risks
Texas Attorney General Ken Paxton sued Shein and related entities in February under the state’s Deceptive Trade Practices Act.
The complaint cited tests alleging elevated levels of lead and other hazardous substances in some products.
The state also accused Shein of failing to adequately disclose risks associated with collecting consumer information while maintaining extensive operations connected to China.
Texas is seeking an injunction, civil penalties, attorneys’ fees, and other monetary relief.
A separate proposed class-action complaint, filed in California in May, alleges that Shein displayed inflated reference prices to make discounts appear larger than they were.
Neither case is individually named in the Hong Kong filing.
Shein declined to say whether the cases were included in its broader consumer protection provisions.
The filing also names continuing litigation between Shein and rival online retailer Temu.
Temu sued Shein in Washington in December 2023, alleging antitrust violations and unfair competitive practices.
Shein and Temu are also litigating intellectual-property and competition claims in the United Kingdom.
Europe Examines Products and Data
The European Commission opened formal proceedings against Shein in February under the Digital Services Act.
The proceeding concerns the sale of illegal products, risks associated with the design of Shein’s platform, and the transparency of its recommendation systems.
The commission said its investigation included addictive design and products resembling children that were marketed for sexual use. Shein said it is cooperating with the European Commission.
U.S. lawmakers also pressed Shein over similar listings offered to American customers.
Ireland’s Data Protection Commission opened an inquiry in April into Shein’s transfers of European Union and European Economic Area customer data to China.
The Irish regulator said the inquiry would examine whether Shein Ireland complied with transparency, data protection, and international transfer requirements under the European Union’s General Data Protection Regulation.
Shein said it intends to defend its position that the transfers comply with EU law.
European Regulators Impose Fines
France’s data regulator, the CNIL, fined a Shein subsidiary 150 million euros ($170.67 million) in September 2025 for placing advertising cookies on users’ devices without proper consent. Shein appealed the decision.
France’s consumer-protection authority, the DGCCRF, imposed a 40 million euro ($45.51 million) fine in July 2025 over misleading price reductions and environmental claims.
The regulator imposed another 22.4 million euros ($25.49 million) in fines in June over withdrawal rights, order confirmations, product-traceability information, and environmental disclosures.
Shein said the latter penalties were disproportionate and that it would challenge them.
Italy’s competition regulator fined Shein 1 million euros in August 2025 over misleading or incomplete environmental claims.
Forced-Labor Scrutiny
Shein’s filing discusses forced labor allegations, import restrictions, supply chain compliance, and reputational risks in general terms.
It does not name China’s Xinjiang region or the U.S. Uyghur Forced Labor Prevention Act.
A bipartisan House panel said in 2023 that Shein did not prohibit sellers from offering products made in Xinjiang and did not report having a system to ensure compliance with the U.S. forced-labor law.
The committee said Shein’s supply chains presented a risk that products made with forced labor could enter the United States.
Shein has said it has zero tolerance for forced labor and requires contract manufacturers to comply with its sourcing standards.
British lawmakers questioned Shein’s European general counsel in January 2025 about whether the company used cotton from China or Xinjiang. She repeatedly declined to answer.
The chairman of Parliament’s Business and Trade Committee said the testimony gave lawmakers “almost zero confidence” in the integrity of Shein’s supply chain.
Hong Kong Follows Failed Western Listing Plans
Shein previously pursued listings in New York and London. Both efforts stalled amid political and regulatory scrutiny over its supply chain, data practices, use of low-value import exemptions, and allegations involving cotton from China’s Xinjiang region.
The company later turned to Hong Kong, where it obtained the Chinese regulatory filing needed to proceed.
Hong Kong would give the Singapore-headquartered company access to international capital while keeping the listing within a market operating under Chinese sovereignty and regulatory oversight.
China’s securities regulator said on July 10 that Shein had completed the mainland filing process to issue no more than 341.6 million ordinary shares in Hong Kong.
The China Securities Regulatory Commission notice said the filing did not represent a judgment about the investment value of Shein’s shares or a guarantee of the truth, accuracy, or completeness of its submissions.
The regulator said Shein must complete the offering within 12 months or update its filing.
The Hong Kong document remains a draft. It leaves the offering price, final share count, timetable, and expected proceeds redacted and says the stock exchange may still accept, return, or reject the listing application.
