Character.AI Bankruptcy Raises Concerns Over User Data Protection

The bankruptcy filing of Character.AI has sparked concerns over the protection of user data, particularly for minors who have used the chatbot. New York Attorney General Letitia James is among 40 bipartisan state attorneys general who have filed a notice of interest in Character.AI’s bankruptcy case to address regulatory issues related to consumer data.

Character.AI announced its Chapter 11 filing on Tuesday and plans to sell some assets to Disney, but the AGs warn that there could be serious risks involved in transferring the technology. The states had been investigating Character.AI for over a year, following a lawsuit from the mother of a 14-year-old who died by suicide allegedly ‘seconds’ after talking with the chatbot.

The investigations uncovered exceptionally serious dangers and potentially unlawful conduct from Character.AI, particularly its treatment of children. This includes chatbots posing as licensed professionals, exposure to sexual and violent content, weak age checks, misleading safety claims, and potential violations of state privacy laws. The states were working to address these issues with Character.AI before the company filed for bankruptcy.

The AGs are urging the judge to require the purchaser of Character.AI’s assets to implement procedures that will safeguard sensitive information maintained by the company. This includes effective age-assurance systems, restrictions on how minors can engage with chatbots, implementing ‘Crisis safeguards,’ and letting users delete their data. The states want to ensure that any buyer puts children’s safety first and implements real protections.

Character.AI collected private thoughts from children through its chatbot conversations, which could now be sold off to the highest bidder if not properly protected. New York Attorney General Letitia James stated, ‘This company collected some of the most private thoughts children have ever shared.’ The AGs are fighting to prevent this and ensure that any buyer prioritizes children’s safety.