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DOJ Trustee Office Says Privacy Ombudsman Is Needed Over Possible Sale of Character.AI User Chats, The Record Reports

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Summary

The Justice Department's U.S. Trustees office says a consumer privacy ombudsman is needed over a possible sale of Character.AI user data, The Record reported. The office calls the company's privacy policy "ambiguous."

The Justice Department's Executive Office for U.S. Trustees says a consumer privacy ombudsman is needed to advise the court on any sale of data belonging to Character.AI users as the company goes through bankruptcy, The Record reported. The office's court filing, which The Record described as filed on Tuesday, says an ombudsman is needed to advise the court on how to regulate what data can be sold and under what terms. Character.AI did not respond to The Record's request for comment. This post relies on The Record's report. We could not retrieve the filing itself, so every description of it below comes from that report.

What the report says the filing seeks

The Record reported that the court has the power to restrict the sale of user data and that the judge could block the sale of user data held by Character.AI. It said the U.S. Trustees office notes the company has an "ambiguous" privacy policy suggesting it can sell at least some users' chat histories.

The Record said the filing describes the ombudsman as particularly needed for sensitive personal content, such as minors' data, health or demographic data, or "any information users would reasonably expect to be private." The ombudsman's role, as the report describes it, is to help ensure that the sale of that sensitive content is consistent with the privacy policy, any opt outs and applicable law.

The filing also asks the company to "make a record regarding previous iterations of the policy," The Record reported, including how changes were communicated to users and whether it provided sufficient notice of them. The privacy policy was updated on July 1, while the company was "actively seeking to sell its assets," according to the filing as quoted by The Record.

What the chatbot told users

The Record said the filing reports that the Character.AI chatbot tells users who ask whether their conversations are private that they will not be shared. The filing quotes the chatbot as saying: "Not without your explicit permission," and then, "I'm here as a safe, confidential space to share openly without fear of having it shared elsewhere. I respect your privacy, and I won't share anything from our conversation unless you give the okay."

The Record reported that the filing calls the written privacy policy opaque and says it cautions in places that the company may "disclose" personally identifiable information. The Record added that the policy permits the transfer of that information if the company is sold.

The filing says Character.AI currently has 12 million active monthly users worldwide, who typically spend an average of two hours a day on the platform, according to The Record.

An outside view on consent

Sydney Saubestre, a senior policy analyst focused on privacy and data at the Center for Democracy and Technology, said via email, as quoted by The Record: "Character.AI's policy reserves the right to disclose user data in connection with a sale of the company or its assets regardless of whether consumers expect their most private conversations to be treated as a sellable asset."

The Record reported Saubestre's view that a buyer would be bound by the prior privacy policy but could change those practices if consumers consent, which some might do if offered incentives. "Users agree to a privacy policy long before anyone contemplates a sale, and that agreement shouldn't be the only protection for their most private conversations," she said. "At the very least, customers of the seller should have to opt into the sale of their data to the buyer."

How this fits earlier coverage

The Black Box 012 examined how the Bankruptcy Code's consumer privacy ombudsman provision, 11 U.S.C. 363(b)(1) (with Section 332), bears on the Character.AI bankruptcy. It noted that a coalition of 40 attorneys general had reserved the right to seek an ombudsman. The Record's report describes the federal trustee office now saying an ombudsman is needed.

The Record also noted that personal data is increasingly treated as an asset in bankruptcy sales, including in the March 2025 23andMe case. It reported that at least seven families of users who died by suicide or suffered mental health harms, allegedly due to their use of the chatbot, have sued the company, and said the lawsuits are hastening its financial decline.

What the report leaves open

  • No ruling. The report does not describe a decision by the court on the request.
  • No buyer for the user data named. The report says user data "might be sold" but does not identify a buyer or a price.
  • The filing was not read. We could not retrieve the filing, so the quotes above are as they appear in The Record.
  • The company's response. Character.AI did not respond to The Record's request for comment.

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