International fashion retailers are rushing to set up virtual shops in China, providing competition to domestic players like tiny Shangpin and larger, Nasdaq NYSE-listed VIPshop, which uses flash sales to move midpriced apparel.

FORBES: Suited-Up Online: Why China's Fashionista Websites Aim High (And Low)

The federal complaint says many users were led to believe that they actually owned their virtual plots of land, on which many players build digital homes and shops that they use for business purposes.

CNN: Can people actually 'own' virtual land?