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FTC sues Toysmart.com
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July 10, 2000: 3:56 p.m. ET
Government says failed Web toy retailer deceptively sold customer data
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NEW YORK (CNNfn) - The Federal Trade Commission filed a complaint Monday against Toysmart.com, charging that the failed Web toy seller sold or shared with third parties information about its customers, after promising not to do so.
The suit, brought in United States District Court for the District of Massachusetts, seeks to stop the sale of confidential, personal customer information collected on the company's Web site.
 According to the FTC, Waltham, Mass.-based Toysmart -- which is majority-owned by Burbank, Calif.-based Walt Disney (DIS: Research, Estimates) -- had a privacy policy posted since fall 1999 that states that it would never share information collected from customers; including names, addresses, billing information, shopping preferences, and family profiles, which include the names and birth dates of children.
Toysmart ceased operations in May saying it was going out of business after burning through most of its cash and being unable to raise more. The company said then that it would seek a buyer for the business.
But the FTC said that not long after it learned about Toysmart's possible violation of its own privacy policy from TRUSTe, a San Jose, Calif.-based non-profit privacy seal organization that had given Toysmart a license to display its seal.
Investigation launched from anonymous tip
A spokesman for San Jose, Calif.-based TRUSTe said it received a tip on the "Watchdog" portion of its site, where consumers can anonymously complain about the alleged misuse of personal data by companies, which have sites that bear the TRUSTe symbol.
TRUSTe said its suspicions were confirmed on June 8 when Toysmart placed a newspaper advertisement announcing its intention to sell its assets.
"In the advertisement, it essentially said 'our customer lists are up for grabs,'" said TRUSTe spokesman David Steer.
After TRUSTe failed in its attempts to contact Toysmart, it published an advisory stating its belief that the sale of this data would be "ethically wrong" and that it would do "everything within the law to protect consumers from this potential invasion of privacy."
FTC staff investigated and allegedly discovered that Toysmart was offering its customer list for sale in violation of its own privacy policy, FTC said.
"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."
Representatives from Toysmart were not immediately available to comment on the FTC complaint. A Disney spokeswoman said the company had no comment.
"We are glad to see that the Federal Trade Commission agrees with us that this case constitutes for unfair and deceptive practices and that the potential sale of this data could be an invasion of privacy," TRUSTe's Steer said. 
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