Shein discloses FTC probe in US, warns of significant payments

By Jody Godoy and Arriana McLymore

NEW YORK, July 28 (Reuters) - Shein, the online fast-fashion retailer, said its U.S. operations are under investigation by the U.S. Federal Trade Commission and that it could face significant fines as a result, according to documents filed in connection with its planned Hong Kong IPO.

Shein is cooperating with the probe, the Chinese-founded company said in the documents published by the Hong Kong stock exchange on Sunday. 

"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 said in the filing. 

An FTC spokesperson confirmed on Tuesday the agency is conducting a consumer protection investigation into Shein. The FTC enforces U.S. laws against unfair and deceptive business practices.

Shein did not disclose why it was under investigation. The company did not immediately respond to a request for comment. 

The fast-fashion retailer shifted its IPO plans to Hong Kong after supply-chain risk disclosures became a major obstacle to proposed listings in New York and London, according to a source with direct knowledge of the matter. China's regulator objected to language in the filing that identified Uyghur forced labor as a potential risk, the source said.

Shein has consistently maintained there is no forced labor in its supply chain.

Last year, Shein said in a letter to British lawmakers that it found two cases of child labor in its supply chain each year in 2023 and 2024 after the government questioned its labor conditions and supply chain practices.

Shein has also faced U.S. government scrutiny in recent years over its business practices.

Shein paid $700,000 last year to settle a lawsuit brought by four California counties over shipping delays.

Texas Attorney General Ken Paxton said in December that he was investigating Shein's supply chain and manufacturing practices.

Shein, which was able to attract a nearly $100 billion valuation in a 2022 fundraising round amid excitement about its lean business operating model, revealed on Sunday it had swung to a quarterly loss, partly due to slowing sales after the U.S. removed the so-called de minimis tariff exemption on small packages.

(Reporting by Sherin Sunny in Bengaluru and Jody Godoy and Arriana McLymore in New York; Writing by Lisa Jucca; Editing by Shreya Biswas, Mark Porter and Sanjeev Miglani)