Futu faces securities class action after CSRC penalty triggers 27.5% drop

Futu Holdings faces a securities class action over alleged undisclosed regulatory failures, after a proposed RMB 1.85 billion CSRC penalty wiped 27.5% off its shares.

"Timely disclosure of material developments is fundamental to fair and efficient markets," Joseph E. Levi, a partner at Levi & Korsinsky LLP, said.

The lawsuit, filed in the US District Court for the Southern District of New York as Tang v. Futu Holdings Limited, et al, 26-cv-05453, covers investors who bought Futu securities between May 24, 2023 and May 27, 2026. Shares fell $34.10 to close at $89.76 on May 22, 2026, after the China Securities Regulatory Commission proposed confiscating illegal gains and fines totaling RMB 1.85 billion (about $271 million). A further 4.8 percent decline followed on May 28 when first-quarter results reflected the penalty's impact.

The complaint alleges Futu continued unlicensed securities, public fund sales, and futures business in mainland China after a December 2022 CSRC warning, while reporting paying client growth of 15 percent to 41 percent year over year and client assets rising from HK$465.5 billion to HK$973.9 billion. Investors seeking lead plaintiff appointment must petition the court by August 25, 2026.

The CSRC first publicly flagged Futu on December 30, 2022, banning the broker from opening new accounts for mainland investors. Futu removed its Futubull trading app from Chinese app stores on May 19, 2023, yet the lawsuit contends the company continued operating without the requisite licenses. Annual reports through April 2026 used conditional language to describe penalty risk, the complaint alleges, even as the regulator's probe advanced.

The proposed penalty, disclosed before market open on May 22, also includes a personal fine for Futu's chief executive. The case names the company and certain of its officers for allegedly violating federal securities laws by overstating financial results tied to the unlicensed operations.

The August 25 deadline applies only to investors seeking lead plaintiff appointment; class members who do not apply can still participate in any recovery. The outcome will hinge on whether the court finds Futu's disclosures between the 2022 warning and the 2026 penalty adequately flagged the regulatory exposure. Investors will watch for the court's appointment of lead counsel and any settlement discussions in the coming months.

This article is for informational purposes only and does not constitute investment advice.