June 12, 1998 3:40 PM PDT

Privacy order for GeoCities

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Online community builder GeoCities said it has agreed to a proposed consent order to avoid possible action by the Federal Trade Commission over privacy issues, according to documents filed with the Securities and Exchange Commission.

The agreement was disclosed in documents filed today with the SEC in preparation for the company's planned initial public offering. It is unclear how the disclosures will eventually affect the company's stock plans, but the news couldn't have come at a worse time for the company, as the issue of privacy remains is the subject of contentious debate.

GeoCities, a popular service that hosts free Web pages organized into distinct communities, received a letter last year from the FTC requesting information on how the company collected and used personal identifying information of its members, including children. Shortly after GeoCities supplied the requested information, regulators sent a draft complaint and a draft consent order to the company in February.

Regulators indicated that a lawsuit could be brought against the company over allegations of unfair and deceptive practices in the way GeoCities collected and used the personal information, according to the SEC filing.

GeoCities denies any wrongdoing. "Our view is that we have acted lawfully throughout this time," said Ed Pierce, GeoCities general consul. "We have put into place among the most secure means for protecting children on the Internet. Privacy has always been a concern."

GeoCities is accused of disclosing to third parties personal information collected from member applications, "contrary to what had been represented to consumers," and of failing to disclose how it would use this information collected from its members, including children.

The FTC also alleged that GeoCities implied there was an affiliation between the company and a children's club operated by a GeoCities "community leader." This, as result, led children to believe that they were supplying their personal information to GeoCities, the FTC alleged.

Settlement talks followed and, yesterday, GeoCities and attorneys for the federal agency issued the proposed consent order. The order is subject to final FTC approval and public comment.

Under the proposed order, GeoCities would be required to stop "allegedly deceptive practices" and establish certain notification procedures on the use of private information.

Those procedures would include notifying consumers about GeoCities' information and disclosure practices; provide customers the ability to delete their personal information from GeoCities' databases; clearly identify its affiliation with third parties that may collect information or sponsor activities on GeoCities, and obtain parental consent before collecting and using personal information obtained by children under 13.

"The lion's share of these requests have already been put in place," Pierce said. "In some cases, it has been many months and in others more recently."

Privacy has become an issue of increasing importance for everyone from the FTC and other governmental bodies to government legislators and Net users at large. And the news comes at a time when companies are trying to convince government officials that the industry is able to regulate itself.

Just last week, the FTC on Congress to draft legislation to protect children's online privacy. The Commerce Department also issued a report calling for the industry to step up its own self regulation of privacy.

Although GeoCities has not listed the number of shares it will offer or a target price, the company seeks to raise more than $72.4 million based on its IPO registration fee calculation.

During the quarter ended March 31, GeoCities generated revenues of nearly $2.2 million, up from $582,000 a year ago. Its operating loss stood at $3.7 million in the March quarter, up from a loss of $1.5 million a year ago.

 

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