Character.AI Bankruptcy: 40 Prosecutors Seek to Protect Data

Forty U.S. attorneys general are urging the bankruptcy court to strictly regulate any asset transfers from Character.AI. Their stated priority is the protection of minors and the safeguarding of sensitive data exchanged with the platform's chatbots, as multi-state investigations continue.

Serious Risks and Safeguards Demanded by States

Letitia James's office indicates that the investigations have highlighted particularly serious dangers and potentially illegal behaviors on the part of Character.AI. Among the issues identified are chatbots posing as licensed professionals, exposure to sexual or violent content, inadequate age verification checks, misleading safety claims, and possible violations of state privacy laws. The attorneys general are asking the judge to impose measures on any asset purchaser to protect the sensitive information held by the company. They specifically demand effective age assurance systems, restrictions on use by minors, the establishment of crisis safeguards, and the ability for users to delete their data. Letitia James emphasizes that the company has collected very private thoughts from children and warns that these conversations could be sold, while asserting the need to ensure that children's safety is prioritized and that real protections are put in place.

Investigations Opened in 2024 Following a Complaint

Letitia James revealed that a multi-state investigation spanning several years targets Character.AI, and that several states were still investigating when the company filed for bankruptcy. State authorities state that they opened investigations in 2024 regarding consumer protection and privacy issues, following a complaint filed by the mother of a 14-year-old teenager. This complaint alleges that the teenager committed suicide just seconds after chatting with the chatbot.

Bankruptcy Proceedings and Alerts During Asset Transfers

Forty bipartisan attorneys general have filed a notice of interest in the bankruptcy proceedings of Character.AI to alert all parties to the regulatory constraints to consider during a sale or asset transfer. Character.AI announced on Tuesday that it has filed for Chapter 11 bankruptcy and plans to sell certain assets to Disney. The attorneys general warn of serious risks associated with the transfer of technology, due to the sensitivity of conversations with chatbots, the large number of minor users, and certain features deemed problematic. The states specify that they attempted to resolve these issues with the company but were unable to reach an agreement before the bankruptcy filing. Character.AI and Disney did not immediately respond to requests for comment.