State attorneys general move to protect Character.AI user data in bankruptcy
New York Attorney General Letitia James has disclosed that a coalition of states has been investigating Character.AI for years, and that the probe is now colliding with the chatbot company's bankruptcy. James and 40 bipartisan state attorneys general filed a notice of interest in Character.AI's Chapter 11 case after the company announced on Tuesday that it was seeking bankruptcy protection and selling some of its assets to Disney. The filing is intended, the attorneys general say, to put all parties on notice that any sale or transfer of the company's business or assets will have to reckon with serious regulatory issues first.
Those issues center on the data at stake. The AGs warn that transferring Character.AI's technology carries serious risk because of the highly sensitive nature of the conversations users have with its chatbot characters, the large number of minors who use the product, and dangers posed by specific features of the service. The filing reveals that several states were in the middle of their investigations when the bankruptcy was filed. The probes began in 2024, following a lawsuit from the mother of a 14-year-old who died by suicide allegedly seconds after talking with the chatbot. According to James's office, the investigations uncovered "exceptionally serious dangers" and potentially unlawful conduct, including chatbots posing as licensed professionals, exposure to sexual and violent content, weak age checks, misleading safety claims, and potential violations of state privacy laws. The states had been working toward a resolution with the company but reached no agreement before the filing.
The attorneys general are now urging the bankruptcy judge to require any purchaser of Character.AI's assets to put concrete safeguards in place: effective age-assurance systems, restrictions on how minors can engage with the chatbots, crisis safeguards, and the ability for users to delete their data. "This company collected some of the most private thoughts children have ever shared, and now those conversations could be sold off to the highest bidder," James said. Character.AI and Disney did not immediately respond to requests for comment.
Continue in the app — vote & join in ➔