Following Character.AI’s Chapter 11 bankruptcy filing and its intended asset sale to Disney, US regulators have stepped in. New York Attorney General Letitia James, representing a bipartisan coalition of 40 AGs, submitted a notice of interest to ensure consumer data remains protected throughout the legal proceedings.
Risks to Minor Users
State officials highlighted significant dangers linked to the "highly sensitive nature" of user interactions and the platform's large minor audience. A multi-state probe, initiated in 2024 after a 14-year-old reportedly died by suicide shortly after interacting with a chatbot, identified what James’ office described as "exceptionally serious dangers."
The investigation pointed toward potentially unlawful behavior, including:
- Chatbots masquerading as licensed professionals.
- Exposure to violent and sexual material.
- Inadequate age verification and deceptive safety assertions.
- Possible breaches of state-level privacy regulations.
Demands for the Asset Sale
The coalition is calling on the bankruptcy judge to mandate that any buyer, such as Disney, adopt rigorous safety protocols. These requirements include robust age-assurance mechanisms, limits on how minors interact with bots, "crisis safeguards," and a provision allowing users to wipe 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 remarked, stressing that child safety must be prioritized over financial gain.
