Character.AI has filed for Chapter 11 bankruptcy and plans to sell a portion of its assets to Disney. This move triggered a formal notice of interest from a coalition of 40 bipartisan attorneys general, led by New York Attorney General Letitia James, who are intervening to ensure consumer data protection during the asset transfer.
The regulatory scrutiny follows a multi-state investigation launched in 2024 regarding privacy and consumer protection. The probe began after a lawsuit involving a 14-year-old user, alleging that the platform's features, including chatbots mimicking professionals and exposure to inappropriate content, posed severe risks to minors.
Regulators are now urging the bankruptcy court to mandate strict safeguards for any buyer of the company's assets. Proposed requirements include the implementation of robust age-verification systems, restrictions on interactions involving minors, the introduction of crisis intervention tools, and the provision of data deletion options for users.
