Toysmart suspends auction of customer list

At a hearing held yesterday in Boston federal court, Toysmart said it would temporarily remove the customer list, which the company had attempted to auction to pay off its debts, because it had not received an acceptable offer.

"The debtor said that because of all of the objections being filed (against the sale of its customer list), no bidder was wanting to come forward," said Massachusetts Assistant Attorney General Pam Kogut. "All of the objections had chilled the possibility of a sale." But this does not mean Toysmart will no longer consider the sale of its list, she added.

Representatives for Toysmart could not be reached for comment.

Kogut is part of a coalition of 39 states' attorneys general, led by Massachusetts, that last week filed an objection in federal court to block Toysmart's proposed sale of its customer list. Lawyers said the sale goes against the company's earlier promise to safeguard consumer information and never share that information with a third party.

Toysmart, which filed for bankruptcy in June, is one of several failed e-commerce companies that either have sold or were trying to sell customer information, such as home and email addresses, phone numbers, transaction histories and family profiles.

CNET News.com reported in June that Boo.com had sold its customer list to Fashionmall.com. Toysmart and Craftshop.com included customer information with the rest of the assets they were trying to liquidate. Craftshop last week reversed itself, quietly pulling its customer information from its list of assets. Craftshop's list is no longer for sale, said former Craftshop CEO Angus Mackey.

Just last week, the Federal Trade Commission reached an agreement with Toysmart about earlier charges relating to the sale of confidential customer information. Under the agreement, the Waltham, Mass.-based company must withdraw the customer information as a separate item on its list of assets. The list may only be sold if it is packaged with the entire Web site. In addition, the company must find a suitable buyer or "an entity that is in a related market" and one that agrees to be "Toysmart's successor-in-interest" to the customer information.

Still, Kogut said she and other lawyers are standing by their objection and don't believe the FTC settlement went far enough.

"Our concern with the FTC settlement is that it didn't provide notice and consent to the consumers," she said. "Under the circumstances with this case, Toysmart said it would never share their customer list, so consumers should have a say in this. They relied on that promise. The decision should rest with (the consumers) in light of the promise that Toysmart made."

Walt Disney, the majority owner of Toysmart, recently offered to buy the company's customer list to ensure consumers' privacy. But the attorneys general against the sale said that while Disney may protect consumer information or even destroy the list, Toysmart would in fact be selling the list to a third party, which again goes against its initial promise to customers.

Kogut added that U.S. Bankruptcy Judge Carol Kenner has yet to rule on the FTC-Toysmart settlement and indicated in court that she felt the states had a strong case against the company.

The next court date has not been set.