Privacy / AI Governance / Regulation
US Justice Department seeks privacy ombudsman over possible sale of Character.AI user chats in bankruptcy
The DOJ's bankruptcy trustee office calls Character.AI's privacy policy 'ambiguous' and says the court should examine whether users' chats, including minors' data, can lawfully be sold.
The US Department of Justice’s Executive Office for U.S. Trustees has asked the bankruptcy court overseeing Character.AI to appoint a consumer privacy ombudsman to advise on what user data may be sold and on what terms, according to The Record. The court can restrict or block such a sale.
The filing says the platform has 12 million monthly active users, who spend about two hours a day on it on average. It contrasts the chatbot’s assurances that conversations stay confidential with a privacy policy that allows disclosure of personal data and its transfer if the company is sold. The policy was updated on 1 July while the company was ‘actively seeking to sell its assets’.
The office wants Character.AI to document earlier versions of the policy and how changes were communicated. Character.AI did not respond to The Record.
Editor’s note: This article relies on a single secondary news report; the DOJ court filing itself was not reviewed.
Why it matters
The case shows that user data, including conversational logs, can be treated as a saleable asset in insolvency, and that regulators will compare privacy policies, product statements and change history. Teams should check whether their privacy notices address transfers in a sale or reorganisation, whether in-product or AI assistant statements about confidentiality match the policy, and whether they keep versioned records of policy changes and user notifications. Datasets containing minors', health or other sensitive data should be identifiable in inventories so that any transfer can be scoped and restricted.
Status: Alleged. DOJ trustee filing; the bankruptcy court has not yet ruled on the request
Sources
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Governance areas
Who should care
- DPO
- Legal & compliance
- AI governance lead
- Data stewards