Crumbs Bake Shop Inc., the cupcake chain that shut down and filed for bankruptcy last month, shouldn't be able to auction off customer lists without oversight, according to the U.S. Trustee, who said such a sale would violate the company's privacy policy.

The Justice Department's bankruptcy watchdog asked the court to appoint a "consumer privacy ombudsman" to ensure that personally identifiable customer information, such as names, addresses and phone numbers, is protected in the sale, according to court papers filed July 30.

The contract for the proposed sale of the business to so- called stalking horse Lemonis Fischer Acquisition Company, a joint venture of pre-bankruptcy lender Fischer Enterprises and Marcus Lemonis, provides for the purchase of the company's intellectual property, including customer lists, according to court papers.

The U.S. Trustee's filing cited the Crumbs privacy policy, saying it permits the transfer of customer information only if the company is compelled by a governmental authority, the consumer expressly consents or it's necessary to process transactions and provide services.

Since selling the customer lists to a third party doesn't fall within those exceptions, a sale is prohibited, the U.S. Trustee said. To read the privacy policy differently would render it "meaningless," according to the U.S. Trustee.

A consumer privacy ombudsman appointed under the Bankruptcy Code assists the court in considering how to treat personally identifiable data. The ombudsman may present information about the company's privacy policy, and potential gains or losses and costs or benefits to affected consumers, as well as alternatives to mitigate any privacy losses or costs to consumers.

A hearing to consider appointing an ombudsman is scheduled for tomorrow, according to court papers.

--Bloomberg News