Customer Info Sale Blocked

Texas officials have moved to prevent bankrupt e-tailer from selling the personal information of its customers, reaching a settlement agreement concurrent with a lawsuit filed Monday against the Amazon-backed company.

“It is important that Internet companies respect Texans’ privacy rights whether the company is in the black or in the red,” Texas Attorney General John Cornyn said. “This settlement will set the standard for future settlements and protects Texans’ privacy rights.”

Like many online companies, the Austin, Texas-based had a privacy policy that explicitly stated it would not sell, trade or rent its customers’ personal information without their consent.

Texas Assistant Attorney General Hal Morris told the E-Commerce Times that although had not yet taken out an advertisement on the lists, it was publicly known that its customer database would be on the auction block when the sale of the company’s assets commenced.

The Settlement

Under the terms of the agreement, which still requires the final approval of the bankruptcy judge, will be allowed to sell or transfer customer names, addresses and other non-financial information via a bankruptcy trustee.

However, before such a sale can take place, the order requires the bankruptcy trustee to give all of’s customers the option to opt out of the sale. Upon notification, customers must specifically inform the trustee, via e-mail, that they object to the sale of their personal information.

The agreement also requires the trustee to oversee the destruction of the customer’s personal financial information, including credit card, bank account and Social Security numbers.

Morris said the situation is “win-win” because it allows to market the information while still honoring its commitment to notify customers before their private information is sold or transferred.

Lone Star Privacy Protection

This episode is the second time that Texas has stepped up to stop the sale of consumer personal information. Last summer, the state was the first of 41 states to file an objection with the U.S. Bankruptcy Court in Boston, Massachusetts over the proposed sale of’s customer database.

Like, had a privacy policy that strictly prohibited the sale of its customer information. When the Disney-backed toy store went belly-up, it put its customer database on the auction block, hoping to raise some quick cash to pay off its creditors.

The Federal Trade Commission also raised an objection, but drafted a settlement agreement that would have allowed the sale under certain conditions.

The question soon became moot when no buyer stepped forward. The judge declined to set conditions for the sale, but said she would address the issue if a buyer ever came forward.

Cornyn reiterated Monday that his office would “continue to vigorously fight any proposed future sale.”

Texas Internet Bureau in Action

Texas has been aggressive in its battle to protect its citizens from both the unauthorized sale of their personal information and the continual threat of Internet fraud.

Last week the state announced the formation of the Texas Internet Bureau, a new division within the Attorney General’s office to fight fraud and crime on the Internet. The new bureau, funded with an $800,000 (US$) state grant, will coordinate and direct the Internet crime fighting efforts of attorneys and investigators in the Attorney General’s Office and act as a resource for Texas law enforcement officials and the public.

The state exhibited its get-tough policy last week by filing lawsuits against two companies that it believes are operating illegal online pyramid schemes. One, Double Eagle Marketing of Killeen, Texas, purports to be a home business opportunity but is allegedly a pyramid scheme that pays participants for bringing others into the scheme and not selling products.

The other, Arizona-based Bigsmart, offers consumers the opportunity to buy into an Internet mall for $300 to $900. According to the Attorney General’s office, these malls are simply Web sites with links to other online merchants.

“In taking the bad actors offline, we build consumers’ trust in the Internet marketplace and make the economy stronger,” Cornyn said.

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