XY Bankruptcy Proves Cautionary Tale for Opt-in Email Marketers

Earlier this year, Peter Ian Cummings, founder and managing editor of XY, an online magazine, filed for personal bankruptcy. Among his assets, he listed only his $1,500 vehicle—which at times has doubled as his home—and the customer list and personal data for his publication. Surprisingly, the most valuable asset in that list isn’t the car—it’s the subscriber information. And that’s precisely what XY’s creditors have set their sights on.

But here’s the rub: XY wasn’t just any ordinary online magazine. XY’s target audience was gay youth, which included openly homosexual young men as well as willfully closeted gays. To protect the privacy of young readers who may face social and familial backlash if they were outed, XY promised to never disclose their information to other parties and offered them the option to “sign on as hiding.” For XY readers, anonymity was an integral part of the community that they paid for.

In an effort to uphold his promise to his readers, Cummings has refused to turn over the personal data of his subscribers, stating that doing so would violate California privacy laws and FTC bans on “deceptive business practices.” However, by listing the assets on his bankruptcy petition, Cummings has relinquished it to the bankruptcy estate, which must be administered in order to compensate his creditors.

But the FTC seems to be on Cummings’s side. In a letter sent to creditors and attorneys involved in the bankruptcy case, the FTC stated that the continued use of the personal data—including mailing addresses—may pose an unreasonable privacy risk for subscribers. The print magazine wound down over three years ago, which means that former subscribers—many of whom likely lived with their parents—may not even reside at said addresses anymore, reasoned the FTC. Receiving further solicitations on behalf of the magazine would likely reveal their orientations to those who do currently reside there.

While most online businesses have slightly different circumstances than an online or print magazine, one thing that Internet marketers have in common is the notion of subscriptions. Opt-in email newsletters are a powerful marketing tool for online businesses—and it has become common practice to promise subscribers that you will never share their information with a third-party or subject them to spam. But as the case of XY illustrates, that decision might not wholly be up to you if you find yourself in receivership. If you are collecting email lists, you may want to update your language to protect yourself in this case or consult with your attorney to devise a way to keep your promise in the event that your business’s assets changes hands.

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