A securities fraud class action lawsuit is pending against Futu, Li Hua, chief financial officer Chen Yu
[HONG KONG] From an early engineer at Tencent to the billionaire founder of Futu, Li Hua built one of China’s most prominent online brokerages. Now, the cross-border business model that powered Futu’s rise has exposed the 49-year-old entrepreneur to the most serious regulatory and legal challenge of his career.
A securities fraud class action lawsuit is pending against Nasdaq-listed Futu, Li and chief financial officer Chen Yu in the US District Court for the Southern District of New York, accusing the company and its executives of failing to adequately disclose the legal risks of conducting cross-border securities business in mainland China.
The lawsuit follows a May 22 announcement by the China Securities Regulatory Commission (CSRC) that related entities of Futu, Up Fintech and Long Bridge HK provided securities marketing and order-processing services on the mainland without required licences, constituting illegal securities business activity. The regulator also cited illegal futures brokerage and mutual fund distribution.
Futu said Chinese regulators intended to confiscate illicit gains and impose penalties totalling about 1.85 billion yuan (US$273 million). Li faces a proposed personal fine of 1.25 million yuan.
Futu’s shares fell more than 30 per cent at one point after the penalties were disclosed. The plaintiff in the US case alleges that the sudden disclosure of regulatory risks caused losses for investors who bought Futu shares during the relevant period.
The complaint also argues that Li should be held responsible because he signed regulatory filings and participated in the company’s disclosures.
The latest legal challenge caps an unlikely trajectory for Li, who went from being Tencent’s 18th employee to founding a small financial-technology startup that grew into one of the best-known online brokerages serving Chinese investors.
His company’s success rested on an effort to remake the brokerage experience through faster software, smoother account opening and an investor community modelled partly on social-media platforms. But it also relied for years on a cross-border structure that Chinese regulators increasingly came to regard as unlicensed securities activity conducted on the mainland.
Tencent’s 18th employee
Li is from Loudi, a city in central China’s Hunan province. He entered Hunan University in 1995, studying electronics and computer-related subjects.
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After graduating, he received job offers from Huawei Technologies and Shenzhen Development Bank, among other employers. Tencent, then only a little over a year old and virtually unknown outside China’s nascent internet industry, appeared to be the riskier choice.
Li was drawn to OICQ, the early messaging product later renamed QQ, and joined Tencent as the company’s first graduate hire.
In his eight years at Tencent, Li worked in marketing, operations, R&D and product management. He participated in the early development of QQ and later helped build Tencent Video from scratch, according to earlier interviews and media reports.
Li completed or contributed to 24 domestic and international patent applications during his Tencent years. Before leaving, he served as head of the company’s innovation centre, where he was responsible for incubating new businesses.
The lesson that stayed with him most was Tencent’s preference for taking small steps, iterating quickly and repeatedly adjusting products after direct contact with users, he told Chinese media.
Li’s attention to detail became part of his reputation. In an interview with The Economic Observer, he recalled debating with co-founder Pony Ma over whether a dividing line on a digital interface should be one pixel thicker or thinner.
At Futu, he would later show employees two nearly identical star-shaped icons and explain how rounded corners and proportions affected their visibility on small screens.
Li has described himself as a product-driven person and an obsessive craftsman focused on user experience.
Tencent granted options to some early employees around 2001. After the company listed in Hong Kong in 2004, Li accumulated significant wealth and began trading Hong Kong stocks frequently.
During the 2007 bull market, Li later said, his personal trading volume reached several billion Hong Kong dollars, generating millions of dollars in commissions for his broker. He left Tencent in 2008.
Moving into securities
Li’s frustration with local brokerages eventually pushed him towards the securities industry.
Brokerages charged high commissions, he recalled, but their technology lagged. Opening an account could take one or two weeks, trading systems sometimes went offline, moving funds was cumbersome and customer service could be difficult to reach after the market closed.
“I couldn’t understand how they could charge so much and still do the job so badly,” he said in an earlier interview. One system outage cost him about HK$300,000 (US$38,200) during a single lunch break, he said.
Li assembled a team to develop a Hong Kong stock-trading system. The system completed technical certification with the Hong Kong exchange through a partner institution, and Li tested it by conducting several billion Hong Kong dollars in real-money trades using his own funds.
The experience convinced him that the product development and engineering skills accumulated by internet companies could be applied to traditional brokerage services.
Developing only a front-end trading tool would have required less capital and fewer licences. But it would have left trading, clearing, customer assets and much of the service chain under the control of traditional financial institutions.
Li concluded that the only way to control the entire customer experience was to become a licensed securities firm.
Fundraising proved difficult. By 2012, Hong Kong’s brokerage industry was already crowded, and many investors struggled to understand why a former Tencent employee with no traditional finance background wanted to enter a heavily regulated business.
When outside funding failed to arrive quickly, Li invested about HK$40 million of his own money in regulatory capital and early operations, according to his previous public comments. He also took the qualification examinations required for Hong Kong’s securities industry.
At its most difficult point, Futu had only 11 employees. Li later recalled that the company had two internal chat groups: one with all 11 workers and another with 10. The only person excluded from the second group was Li. Employees used that chat largely to discuss when they should leave the company.
Tencent’s backing
Futu’s fortunes began to change after Wu Xiaoguang, a former Tencent executive, tried the product in 2013 and found it easy to use, according to earlier reports. His endorsement helped attract the attention of Tencent’s investment team.
In March 2014, Tencent, MPCi and HSG invested in Futu’s Series A funding round. The three investors also participated in subsequent financing rounds. Before Futu’s 2019 listing, Tencent held about 38.2 per cent of the company, making it the largest institutional shareholder.
Futu sought to distinguish itself through technology. By 2018, customers could complete the entire account-opening process online, with applications approved in as little as five minutes, according to the company’s prospectus.
Futu added more than 215,000 new accounts that year, compared with roughly 81,000 in 2016 and 138,000 in 2017.
About 65 per cent of its employees worked in research and development at the end of 2018. R&D spending totalled roughly HK$151 million that year, representing 42.8 per cent of operating expenses.
Li also insisted on calling the app “Moomoo”, using an informal, cartoon-like name at a time when Chinese financial software typically favoured names evoking intelligence or wealth.
Most employees opposed the choice, believing it sounded unserious or even childish. Li argued that a pure trading tool could be copied easily, while a platform could accumulate relationships and emotional loyalty among users.
From its launch, Futu embedded Tencent-style social and product thinking into securities trading. Customers could check market data and place orders while also reading news, posting opinions and following other investors.
Those features eventually developed into an investor community, which increased the time users spent on the platform, raised engagement and reduced customer-acquisition costs.
Explosive growth
A surge in Hong Kong stocks in 2014 and 2015 delivered Futu’s first period of rapid growth.
After the Qingming Festival holiday in 2015, trading volumes on the Chinese mainland and Hong Kong jumped sharply, putting pressure on brokerage systems. Futu’s platform remained stable with support from Tencent Cloud, helping it build a reputation among active investors.
Growth nearly overwhelmed the company in another way. Securities firms are required to deposit funds with clearing institutions based on transaction volumes. After Futu’s daily turnover surged, it briefly struggled to meet settlement requirements and risked fines or even the suspension of its trading qualification.
Futu listed on the Nasdaq on Mar 8, 2019. The stock rose 27.7 per cent in its first trading session, giving the company a market value of about US$1.7 billion.
Twelve days later, Tiger Brokers’ parent, Up Fintech, also listed on Nasdaq. The back-to-back debuts turned cross-border online brokerages into one of the most closely watched Chinese investment themes of the year.
Futu entered another period of rapid growth during the Covid-19 pandemic. Loose global monetary policy, increased interest in trading from home and active US and Hong Kong stock markets fuelled rapid growth in customers, transaction volume and profit.
The company expanded overseas, entering markets including the US, Singapore, Australia, Japan, Canada and Malaysia.
In the fourth quarter of 2025, revenue rose 45.3 per cent from a year earlier to about HK$6.44 billion, while profit increased 80.2 per cent to roughly HK$3.37 billion.
Regulatory grey area
Futu’s ascent was built partly on a business structure common among cross-border online brokerages.
The company held licences issued by Hong Kong’s securities regulator and obtained regulatory qualifications in markets including the US, Singapore, Australia and Japan through applications and acquisitions.
A substantial share of Futu’s early customers, however, came from the Chinese mainland, where it didn’t hold a securities licence.
The industry’s longstanding argument was that securities accounts were opened overseas, transactions were processed abroad and customer assets were held by licensed offshore institutions. Mainland entities, under that interpretation, mainly provided software development and technical support rather than securities services.
Futu also didn’t directly provide customers with services to convert yuan into foreign currencies.
The central regulatory question was whether such platforms merely accepted applications from mainland investors seeking to open overseas accounts – or actively solicited customers, processed transactions and earned revenue through marketing, technology and operating systems based on the mainland.
Chinese regulators began signalling a tougher position in 2021. Sun Tianqi, then head of the financial stability bureau at the People’s Bank of China, said in October that cross-border online brokerages were, in substance, “driving without a licence” on the Chinese mainland.
Under China’s Securities Law, no institution or individual may conduct securities business inside the country without approval from the State Council’s securities regulator.
Futu responded that it had operated under Hong Kong licences and supervision since its founding and was no different in essence from other licensed Hong Kong brokerages. It said it remained in communication with regulators.
In December 2022, CSRC formally began rectifying what it described as illegal cross-border operations by Futu and Tiger Brokers. The regulator ordered the companies to stop soliciting mainland investors, acquiring new mainland clients and opening new accounts for them.
To avoid severe disruption to existing business, regulators initially allowed existing mainland customers to continue trading. The firms were barred, however, from accepting new funds that violated China’s foreign exchange rules.
Futu removed its app from mainland app stores, tightened account-opening requirements and shifted its growth strategy towards Hong Kong and overseas markets.
The sword falls
For several years, investors waited to see whether China’s campaign against cross-border brokerages would lead to penalties.
Futu repeatedly emphasised that most of its new customers came from Hong Kong and overseas. Yet questions persisted over how regulators would deal with mainland accounts accumulated in earlier years and whether the company’s domestic and offshore entities had conducted unlicensed securities business.
After the long-anticipated penalties arrived on May 22, Futu further restricted services for existing mainland customers. Beginning Jun 12, it stopped allowing affected clients to buy securities, open new positions or transfer additional funds from the Chinese mainland. Customers could only sell holdings, close positions or transfer assets out.
Futu and Tiger together had an estimated 570,000 to 630,000 funded mainland accounts affected during the two-year rectification period, representing client assets of roughly US$27 billion to US$29 billion, according to estimates by Caixin.
Futu reported revenue of HK$5.86 billion in the first quarter of 2026, up 24.7 per cent from a year earlier. Net profit fell 61.2 per cent to HK$831 million after accounting for the Chinese penalties.
“Overall, the company’s operations in Hong Kong and overseas markets remain normal, and new businesses are progressing in an orderly manner,” Li said during Futu’s first-quarter earnings briefing.
Futu once hoped to secure a licence to operate in China’s domestic A-share market. Li told Caixin in an interview in 2021 that the mainland already had strong competitors, including East Money Information, which leaned towards the Internet model, and Huatai Securities, a more traditional brokerage with strong technology capabilities.
Futu would need to identify a differentiated way to enter, he said. Its product and service culture could still create opportunities, but the advantage would likely be incremental rather than the generational leap it enjoyed in Hong Kong. That prospect now appears more distant. CAIXIN GLOBAL
