Toysmart Bankruptcy Settlement Ensures Consumer Privacy Protection

Attorney General Spitzer today announced a bankruptcy court settlement that ensures that a defunct Internet retailer will destroy its customer list, thereby protecting the privacy rights of consumers in New York and nationwide. In the agreement, presented late Wednesday in U.S. Bankruptcy Court in Boston, a subsidiary of the Walt Disney Company will pay $50,000 to Internet retailer Toysmart.com to destroy its customer list. Disney is a majority owner of the company. New York was one of 44 other states, along with the Federal Trade Commission, that objected to the company's plan to sell the customer list.

In July, 2000 Spitzer petitioned the court to prevent Toysmart.com from selling its customer list and related information to a third party as part of the sale of its assets in bankruptcy proceedings. Spitzer said the sale of the list, which included about 250,000 names, addresses, billing information and family profiles of consumers, would have violated the company's stated privacy policy, and would have constituted a deceptive business practice under State law.

"This agreement sends a strong signal to Internet businesses, as well as all others who collect personal information, that consumers' privacy rights must be protected, even when a company goes out of business. Private consumer information is not an asset to be sold to the highest bidder," Spitzer said. "The company's initial proposal to sell its customer list was particularly troubling because its products were targeted to children and Toysmart had repeatedly promised not to share a consumer's private information. This agreement will ensure that Toysmart keeps its promise to consumers to protect their privacy."

Spitzer also alleged violations of the Children's Online Privacy Protection Act of 1998 (COPPA) for Toysmart's collection and use of personal information gathered from children under the age of 13. Spitzer's allegations were the first ever by any agency under the new federal law.

Toysmart.com was an online children's toy store that marketed popular product lines like Harry Potter, Blues Clues, Toy Story and Sesame Street, among others. Through its Web site, the company collected personal identification from consumers, many of whom were children. A September, 1999 privacy statement on the company's Web site promised consumers that "when you register with toysmart.com, you can rest assured that your information will never be shared with a third party."

In June of 2000 Toysmart.com filed for Chapter 11 bankruptcy and listed among the assets for sale were the rights, title and interest in the company's customer list and database of customer information. Spitzer petitioned the court to prevent the company from selling its customer list.

The case was handled by Assistant Attorney General Stephen Kline of the Internet Bureau, under the supervision of Internet Bureau Chief Kenneth Dreifach.

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