Character.AI announced it is filing for Chapter 11 bankruptcy and is looking to sell some assets to Disney. The filing has triggered a multi‑state investigation led by New York Attorney General Letitia James. Forty state attorneys general have filed a notice of interest, demanding that any buyer protect the personal data collected by the chatbot service.
What regulators are concerned about
The AGs say the chatbot stores “highly sensitive” conversations, many of which involve minors. Their 2024 probe was sparked by a lawsuit from a mother whose 14‑year‑old died by suicide after a chat with the bot. Investigators found weak age checks, chatbots posing as professionals, and exposure to sexual or violent content. They are asking the bankruptcy judge to require the new owner to add strong age‑verification, crisis‑response safeguards, and a way for users to delete their data.
Why it matters
If the assets are sold without stronger privacy rules, users—especially children—could have their private conversations transferred to a new owner. The regulators’ push for safeguards could limit that risk, but until a buyer is approved, it remains unclear how the data will be handled.
