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Ed-Tech Company’s Bankruptcy Leads FTC to Step In on Data Privacy

By Mark Bomster — May 27, 2014 2 min read

By guest blogger Michele Molnar. Cross-posted from Marketplace K-12

The potential sale of 20 million student records by ConnectEDU, an ed-tech company that filed for bankruptcy in April, has prompted the Federal Trade Commission to step in to protect the student data, the agency announced Friday.

ConnectEDU, a 12-year-old Boston-based company, provides interactive tools to help K-12 and post-secondary learners make academic and career decisions. In its privacy policy, ConnectEDU promised that--prior to any sale of the company--registered users would be notified and have the ability to delete their personally identifiable data.

Now, the FTC said that promise appears to be compromised by the potential sale of the company’s assets, includin the student data, to North Atlantic Capital, a Portland, Me.-based venture capital fund. As a result, the commission--by a vote of 5-0--authorized its consumer protection bureau to write a letter to the bankruptcy court that will rule on the asset sale.

The letter indicates that the terms of the sale of the company and its subsidiary Academic Management Systems Inc. in bankruptcy do not provide consumers the notice and choice set forth in the privacy policy and could potentially run afoul of both the FTC Act and the U.S. Bankruptcy Code.

“On the ConnectEDU website, students have built personal listings of their academic and personal interests, honors and awards, and work experience; employed resume builders, test preparation, and financial literacy tools; and engaged with networks of teachers, mentors, and potential employers,” Jessica Rich, director of the FTC Bureau of Consumer Protection, wrote in the letter.

Rich indicated that the FTC’s concerns would be “greatly diminished” if ConnectEDU provided users with notice of the sale of their personal information, and those users were given a chance to remove it, or if the personal information was destroyed.

The U.S. Department of Education applauded the move on Friday. “Users of online educational tools should be able to trust that companies will use their personal information in accordance with both the companies’ stated privacy policies and applicable federal legal requirements, including the Family Educational Rights and Privacy Act (commonly known as FERPA),” said Dorie Nolt, department press officer, in a written statement.

“This clearly demonstrates the case that the FTC is actively looking to protect students’ privacy, and those companies that don’t follow through with privacy practices might be in the FTC’s crosshairs,” said Bradley Shear, a social-media and digital-privacy lawyer based in Bethesda, Md.

ConnectEDU filed Chapter 11 bankruptcy in April, listing between $10 million and $50 million in liabilities against less than $10 million in assets, according to its petition. Last July, the company was awarded a grant worth nearly $500,000 from the Bill & Melinda Gates Foundation to build an innovative technology platform that would empower students to master Common Core standards for literacy through an engaging, personalized, and collaborative-learning experience.

Follow @EdWeekMMolnar and @EdWeekIandI for the latest news on industry and innovation in education.

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