*States File Suit Against Toysmart

Toysmart.com's legal problems escalated yesterday when 39 states asked the U.S. District Court in Massachusetts to prevent the defunct online retailer from selling personal information about its former customers, according to reports.

Toysmart, which went bankrupt in June, had sought permission from bankruptcy court to sell all its assets -- including its customer records, which include names, addresses and credit card numbers. Privacy advocates argue that the action violates the company's privacy policy, which said it would never sell customer information.

The Federal Trade Commission had already filed suit alleging that the company failed to uphold its privacy guarantee. Toysmart was based in Waltham, MA.

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