Software sold to parents to spy on their children, also helped marketers spy on them, without the parents or children knowing, documents from a U.S. District Court reveal.

Software that allowed parents to spy on their child's online activity, also allowed advertisers to read the child's personal conversations, and view their surfing history. (iStock)EchoMetrix, a New York software company created and sold a program called Sentry Parental Controls, which parents loaded onto their child's computer to secretly view their web surfing history, chat conversations and password-protected instant messaging conversations.

Families were charged $3.99 a month for the service. When they signed up, they were required to provide the age and gender of their children.

The software company also sold a different program, directed at marketers and advertisers, called Pulse. It was billed helping marketers, advertisers and program developers learn what consumers were saying or thinking.

Marketing for the program stated users could get that information, "in their own words — at the moment they say it."

Investigation prompted by privacy groups

An investigation by the U.S. Federal Trade Commission revealed that the private conversations of children, being monitored using the Sentry software, could be searched and monitored by people who had purchased the Pulse program.

The only suggestion that the information being monitored was being sold to third-parties was a vague reference in the 30th paragraph of the licence agreement. According to the FTC, it did not provide a fair warning to parents.

'Companies need to make clear disclosures about how they are going to use and share personal information.'—David Vladeck, Federal Trade Commission

"Companies need to make clear disclosures about how they are going to use and share personal information they collect online — even more so when the information relates to children," said David Vladeck, director of the FTC's Bureau of Consumer Protection.

The FTC launched the investigation after getting complaints from the Electronic Privacy Information Center, a non-profit research organization focused on consumer privacy, and the Center for Digital Democracy, also a non-profit group with similar goals.

As a result of the FTC investigation, the company must cease the practice and destroy the information collected in its marketing database. It will not face any fines related to the FTC actions, however.

The company was fined $100,000 by New York's attorney general in a separate investigation stemming from the same complaint.