Toysmart, which filed for bankruptcy in June, is one of several failed e-commerce companies that either have sold or are trying to sell customer information, such as home addresses, email addresses, phone numbers, transaction histories and family profiles.
The Waltham, Mass.-based company, which closed shop May 19, recently bought advertisements in The Wall Street Journal that listed customer information as one of the assets for sale.
Yesterday, the state of Massachusetts, joined by 38 other states, filed an objection to Toysmart's plans to sell its customer list, asking a federal judge in Boston to block the list's sale because it goes against Toysmart's earlier promise to safeguard consumer information.
"From our point of view, this is a situation that was fairly clean," Pam Kogut, the assistant attorney general who handled the filing, said today. "Toysmart made a very explicit privacy promise to all of its consumers that shopped on its Web site" to keep their information confidential and not share it with third parties.
The company's move to sell its customer list is "out of context of the bankruptcy action and inconsistent with consumer protection acts of Massachusetts and all the other states involved in the objection," she added.
The filing included an affidavit from Robert Lewin, chief executive of Truste, an Internet privacy group that filed a complaint with the Federal Trade Commission last month regarding Toysmart's proposed sale of its customer list.
Toysmart could not immediately be reached for comment.
Meanwhile, FTC staff lawyers are reportedly urging FTC commissioners to approve a settlement proposed by Toysmart that would allow the company to sell its customer list to a buyer who agrees to abide by certain conditions. FTC commissioners are expected to vote today on the settlement.
The settlement would allow a company to buy Toysmart's name, its Web site and its customer list only if the buyer pledges to abide by Toysmart's earlier promises to protect consumer information, The Wall Street Journal reported today.
Earlier this month, the FTC filed a complaint in federal court, claiming the company broke its promise to customers that it would never share their private information. The FTC is seeking to stop Toysmart from auctioning former customers' personal information as part of its liquidation sale.
Walt Disney, the majority owner of Toysmart, recently offered to buy the company's customer list to ensure consumers' privacy. Disney has also been working closely with the FTC to ensure that customers' information remains confidential.
Kogut, who wouldn't comment about the FTC's expected vote today, said her coalition has been in contact with the FTC regarding the objection filing. A court hearing on the matter is set for Wednesday, she said.