FTC Warns Gay Youth Site About Sale of Personal Data

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The U.S. Federal Trade Commission has warned two people associated with a now-defunct magazine and Web site for gay teens and young men that they would violate the privacy promises the publication made to subscribers by selling their personal information during a bankruptcy proceeding.

The FTC, in a letter sent earlier this month, also suggested that the owners of XY Magazine and XY.com would be violating the privacy standards the company had in place before shutting down if they used the subscribers' personal information in a relaunch of the magazine or Web site. The personal information is listed as part of the debtor's estate in a New Jersey bankruptcy proceeding for Peter Ian Cummings, editor and founder of the magazine.

XY Magazine's subscription form said it "never sells its list to anybody." XY.com told prospective subscribers that their magazines would be mailed in shrink-wrapped black plastic so that subscribers' parents couldn't tell what they were getting.

XY.com users were told that personal information they submitted "will not be published," the FTC said.

XY's target audience was gay male teens as young as 13 and gay young men, according to information filed in the bankruptcy case by the FTC. Many of the subscribers and Web site users lived with their parents, and many had not announced their sexual orientation to their families, the FTC said in its letter.

The magazine, published from 1996 to 2007, collected the names and street addresses of about 100,000 subscribers and photographs and articles submitted by about 3,000 former readers, the FTC letter says. In addition, XY.com, which closed in 2009, collected the names, street addresses, e-mail addresses, personal photos and online personal profiles of between 500,000 and 1 million users, the letter said.

Two men seeking to establish ownership of the personal information from subscribers, apparently in an effort to restart the magazine or Web site, may run afoul of U.S. law prohibiting deceptive and unfair business practices, warned David Vladeck, director of the agency's Bureau of Consumer Protection.

"The XY privacy policy is simple, explicit, and clear," Vladeck wrote. "Subscribers and members were told that their personal information would not be sold, shared, or given away to 'anybody.' Therefore, any sale or transfer of the data to a new company, new owner, or other third party would directly contravene the privacy representations and could constitute a deceptive practice by the original company or its principals."

Peter Larson, listed as majority owner of magazine publisher XY Residuary Corp. in the bankruptcy filings, and Martin Shmagin, president of financial consulting firm Innovative Financial Solutions, have asserted ownership of the customer information, the FTC said in its letter.

A lawyer representing Larson and Shmagin didn't immediately return an e-mail message seeking comment on the FTC letter.

Subscribers entrusted their data to Cummings and XY, not to investors Larson and Shmagin, the FTC said in a filing with bankruptcy court. If Larson and Shmagin would attempt to sell the information to recover money that's owed to them, it would represent a major "threat" to public safety, the agency said in the filing.

"Data could be sold and re-sold for decades," the FTC said in the court filing. "Customers would have no adequate remedy at law and no way to regain their security."

Even if Larson and Shmagin used the personal information to restart the magazine or Web site, the information may not be consistent with the original purpose for which it was collected, the FTC said. Mailing notices to subscriber addresses may create privacy concerns, and subscribers expectations have likely changed because the magazine and Web site closed, the letter said.

"With regard to the street addresses collected by XY, many of these were provided by minors living with their parents or others who may have been unaware of their sexual orientation," Vladeck wrote. "With the passage of time since the magazine and website's demise, many of these minors may have moved."

Grant Gross covers technology and telecom policy in the U.S. government for The IDG News Service. Follow Grant on Twitter at GrantusG. Grant's e-mail address is grant_gross@idg.com.

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