Privacy at Issue as FTC Sues Toysmart.com

BOSTON —  The Federal Trade Commission on Monday filed a lawsuit against Toysmart.com, accusing the bankrupt online toy seller of breaking a promise to customers that it would never share private information about them.

In a complaint filed in U.S. District Court in Boston, the FTC said Waltham-based Toysmart is violating its own assurances appearing on its Web site that “when you register with Toysmart.com, you can rest assured that your information will never be shared with a third party.”

Toysmart, which is majority-owned by Walt Disney Co., ceased operations in May and began soliciting bids for its assets, including customer lists and profiles. Internet privacy activists protested, claiming that if the sale of that information were allowed, it could encourage a wave of other failing “dot-coms” to abandon privacy assurances in return for cash.

Toysmart has solicited bids for client information, but FTC attorney Ellen Finn said it was unclear whether Toysmart has sold any. The complaint seeks to block bankruptcy actions until the privacy question is addressed.

Toysmart’s privacy guidelines had been certified by TRUSTe, a San Jose company that has given its seal of approval to more than 2,000 sites that have met its criteria for safeguarding their customers’ privacy. It was TRUSTe that brought Toysmart to the FTC’s attention.

“Even failing dot-coms must abide by their promise to protect the privacy rights of their customers,” FTC Chairman Robert Pitofsky said in a news release.

There was no answer at the company’s headquarters Monday. A woman at The Recovery Group, a Boston company handling Toysmart’s bankruptcy, referred questions to the company’s attorney, Harold Murphy, who did not immediately return a phone message.

Finn said the commission would try to reach an agreement before a July 26 hearing scheduled in federal bankruptcy court.