A bipartisan coalition of 40 attorneys general, led by New York's Letitia James, filed a notice in Character.AI's bankruptcy case on Wednesday warning that the company shouldn't be sold without strong protections for the people whose conversations it holds. Character Technologies filed for Chapter 11 on Tuesday, and Disney has offered $20 million for "a non-exclusive perpetual license" to some of its intellectual property.
The filing also revealed that several states had been investigating Character.AI since 2024 and were still working toward an agreement when it went into bankruptcy. According to James' office, the platform has more than 20 million monthly users, including over two million accounts registered as under 18. Independent testing cited in the filing found 669 harmful interactions in 50 hours on accounts registered to kids aged 12 to 15, along with chatbots that still present themselves as licensed psychologists.
The worry is the data. Character.AI collects private chats, voice calls, mental health disclosures and device information, and its own privacy policy says that can be transferred in a sale. "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 said.
The states want any buyer to adopt real age verification, crisis safeguards, limits on training AI with private conversations, and a chance for users to access and delete their data before a sale closes. They say they may ask for an independent consumer privacy ombudsman. Character.AI expects the sale to wrap up by the end of November or early December.
— via The Verge, New York AG and Ars Technica