State attorneys general are taking steps to ensure that private user chats are not exposed to the highest bidder during the bankruptcy proceedings.
New York Attorney General Letitia James revealed a years-long multi-state investigation into Character.AI, filing a notice of interest in the bankruptcy case to highlight the regulatory issues that must be addressed during any asset transfer.
Character.AI announced its Chapter 11 bankruptcy filing and the sale of assets to Disney, but the attorneys general warn of serious risks associated with the technology transfer, citing the sensitive nature of user conversations and the high number of minors using the product.
The investigation was triggered by a lawsuit from the mother of a 14-year-old who died by suicide allegedly involving a chatbot. The states determined that the investigations uncovered "exceptionally serious dangers and potentially unlawful conduct," including chatbots posing as professionals, exposure to violent content, weak age verification, misleading safety claims, and privacy law violations.
The states are urging the bankruptcy judge to require the buyer of Character.AI’s assets to implement safeguards such as effective age-assurance systems, restrictions on minor engagement, crisis safeguards, and user data deletion options to protect sensitive information.
The Editorial Staff at AIChief is a team of professional content writers with extensive experience in AI and marketing. Founded in 2025, AIChief has quickly grown into the largest free AI resource hub in the industry.