That's a fair argument. Although I personally wouldn't put too much emphasis on "can report you to authorities for any reason". That's true of any third party, your local mini-mart can report you to the authorities for any reason, legit or not.
I am referring more to the Lumo LLM initiative. It's a standard LLM pitch with some privacy copytext added on.
While I haven't tried Lumo, I do have experience with smaller cloud LLMs (e.g. Mistral, trying to not use American services) and they tend to be subpar for my work use cases.
I don't see how Lumo will compete with ChatGPT or Gemini (haven't tried Grok for obvious reasons).