If your chatbot goes bust, who gets your secrets? A warning for Pakistan's crypto firms

People tell chatbots things they would not tell a doctor or a parent. Character.AI's bankruptcy has raised an uncomfortable question about those conversations: what happens to them when the company holding them is up for sale?

Character.AI has filed for Chapter 11 protection while it looks for a buyer. Colin Adams, its chief executive, said the board had concluded that a court-supervised sale offered "the best opportunity to maximize value". Disney has taken a non-exclusive licence to its technology for $20 million as a so-called stalking-horse deal. Reports put the company's peak valuation at around $1 billion, and its estimated assets and liabilities at $50 million to $100 million each. The company says customer data "continues to be protected under our Privacy Policy".

Regulators are not relying on that assurance alone. On 14 October, New York Attorney General Letitia James and 39 other attorneys general filed in the case. They said the service has more than 20 million monthly users, including more than two million accounts registered to users self-declared as under 18, and that their data could pass to a new owner. They want consumers to be able to access and delete their information before any sale, along with limits on using private conversations for AI training without valid consent. They also reserved the right to seek an independent consumer privacy ombudsman.

Deletion may not be a complete answer. Robbie Torney of Common Sense Media has warned that exporting or deleting data "may not mean that that data is gone from model training". Once conversations have shaped a model, the model may be worth buying in its own right.

Few users appear to have thought about this. In a survey of 1,944 US adults, 53% did not know or were not sure that most chatbots train on their conversations by default, and only 25% realised AI chats can be subpoenaed. Some 32% of AI users said they had shared information they kept from close friends, parents or medical professionals. The survey was commissioned and conducted by DuckDuckGo, which sells its own AI product, and Token Times has found no comparable figures for Pakistan.

One bankruptcy does not prove an AI bubble, and a court may yet limit what can be sold. But the case shows the mechanism. If weaker AI companies merge or close, data they collected in confidence can become an asset on a balance sheet, and what happens next depends on the proceedings, the buyer and the local law.

That is where Pakistani users look exposed. Token Times could find no record of a comprehensive personal data protection law being enacted in Pakistan; legal guides published this year describe the bill as still pending. A Pakistani user of a foreign chatbot may therefore have to depend on the company's own policy and on a foreign court.

Pakistan's licensed crypto firms are in a different position. Under regulation 15 of the Pakistan Virtual Asset Services Regulations, when a licence is varied, suspended, revoked or surrendered, the licensee must ensure the secure preservation and, where applicable, "orderly transfer or disposal" of customer data, customer assets, private keys and system logs. Regulation 50 requires PVARA's prior written approval for a transaction that results in a change of control or transfers a substantial part of a licensee's assets. Regulation 69 requires a written personal data programme, including risk assessments for cross-border transfers and the use of service providers.

Those rules cover the licensee, not the chatbot company. This suggests a practical gap: if staff paste customer identity documents into an outside AI tool, the firm remains answerable under regulation 37, while the tool's operator is outside PVARA's licensing regime. Compliance teams may want to ask what their AI vendors keep, and what would happen to it if the vendor were sold. Individual users can check whether a service lets them delete their data, and should keep passwords, private keys, seed phrases and identity documents out of chatbots altogether.

The questions to watch are who buys Character.AI, what conditions the court attaches to any sale, and whether Pakistan's data protection bill finally becomes law.