The US Justice Department's Executive Office for U.S. Trustees has asked a bankruptcy court to appoint a consumer privacy ombudsman to advise on what Character.AI user data may be sold and on what terms, as the firm goes through bankruptcy. The court has the power to restrict the sale of user data; in Character.AI's case the conversations are often sensitive and sometimes involve minors, and the platform has 12 million monthly active users who average about two hours a day on it. The DOJ filing calls the company's privacy policy "ambiguous," noting it suggests at least some chat histories can be sold and permits transfer of personally identifiable information if the business is sold, and that the policy was updated on 1 July while Character was "actively seeking to sell its assets." The ombudsman is sought especially to ensure any sale of minors' data, health or demographic data, or information users would reasonably expect to be private is consistent with the stated policy. The case tests how consumer AI conversation data is treated when an AI company fails.

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