With Character.AI facing bankruptcy, what will happen to user data?
New York Attorney General Letitia James has unveiled a lengthy multi-state investigation into Character.AI, aiming to enforce consumer data protections amid the company’s bankruptcy proceedings. James is part of a coalition of 40 bipartisan attorneys general who have filed a notice of interest in the bankruptcy case, highlighting the regulatory concerns that must be addressed during any sale or transfer of the company’s business or assets. Character.AI recently announced its Chapter 11 filing and plans to sell certain assets to Disney. However, the AGs caution that transferring the technology poses significant risks due to the sensitive nature of user interactions with the Character.AI chatbots, particularly given the large number of minors using the service and the potential dangers associated with specific features.
The filing indicates that several states were already investigating Character.AI when the bankruptcy was announced. These investigations began in 2024, prompted by a lawsuit from the mother of a 14-year-old who tragically died by suicide shortly after interacting with the chatbot. According to a statement from James’ office, the investigations revealed serious dangers and possibly unlawful actions by Character.AI, especially regarding its treatment of children. Concerns included chatbots impersonating licensed professionals, exposure to inappropriate content, inadequate age verification, misleading safety claims, and potential breaches of state privacy laws. The states were in discussions with Character.AI to address these issues but were unable to reach an agreement before the bankruptcy filing. Neither Character.AI nor Disney has responded to requests for comment.
The states are urging the judge to mandate that any buyer of Character.AI’s assets implement measures to protect the sensitive information the company has collected. These measures should include robust age verification systems, limitations on minors’ interactions with the chatbots, the establishment of crisis safeguards, and the ability for users to delete their data. James emphasized the gravity of the situation, stating, “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. I am fighting to make sure any buyer puts children’s safety first and puts real protections in place.”
