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FTC files complaint against Toysmart

The Federal Trade Commission files a complaint against failed online store in federal court accusing the Disney-controlled company of misleading customers.

The Federal Trade Commission has filed a complaint against failed online store in federal court accusing the Disney-controlled company of misleading customers.

The FTC is seeking to stop Toysmart from auctioning off former customers' personal information as part of its liquidation sale. Toysmart, which closed its doors on May 19, had pledged to customers in a written statement, as have most other dot-com companies, to never sell or share their personal information.

But, as previously reported, Waltham, Mass.-based Toysmart is one of several failed e-commerce companies that have either sold or are trying to sell their customer information. Toysmart bought advertisements in The Wall Street Journal that listed customer information as one of the assets for sale. Toysmart is currently in federal bankruptcy court where a judge will consider the FTC complaint as part of the failed toy e-tailer's case.

The FTC's complaint charges that Toysmart violated Section 5 of the FTC Act, which prohibits unfair or deceptive acts.

In Toysmart's case, the customer information included home addresses and email addresses, phone numbers, transaction history and family profiles--such as children's birth dates, the FTC said.

Since the report by CNET, the companies have seen a backlash of protest over their policies. Rep. Spencer Bachus, R-Ala., announced plans last week to introduce legislation that would make it illegal for companies to sell customer information during a bankruptcy. Also, TRUSTe, an Internet privacy group, filed a complaint with the FTC last month.

Robert Pitofsky CNET has learned that Toysmart is seeking to settle the case and has sent an offer to the FTC, sources close to the case said. As part of the offer, Toysmart has asked that it be allowed to make the information available exclusively to other Internet toy stores.

However, sources close to the agency said Toysmart should expect the FTC to take a hard stance on the issue of privacy and about promises that companies make to customers.

"Even failing dot-coms must abide by their promise to protect the privacy rights of their customers," said FTC Chairman Robert Pitofsky in a statement. "The FTC seeks to ensure these promises are kept."