On October 14, 2026, a coalition of 40 state Attorneys General filed a Notice of Interest and Reservation of Rights in the bankruptcy proceeding involving debtor, Character Technologies, Inc. (Character) regarding its product Character.AI’s “outstanding regulatory, safety and privacy issues.”
According to the Notice, Character “designed, built, and distributed Character.AI, an artificial intelligence consumer chatbot product that invites millions of people, including children, to interact with AI-powered ‘characters’ designed to mimic human conversation.” It then marketed Character.AI to children and adults for story telling “despite knowing that its chatbots posed serious safety risks.” In doing so, the “Debtor collects, stores, and analyzes users’ sensitive data, including chat content, declared and inferred ages, emotional and health-related disclosures, and usage patterns and behaviors, and uses this data for analytics, personalization, age assurance, monetization, and to train and improve their product.”
Several states investigated Character for consumer protection and privacy violations following the filing of a wrongful death suit against it, which alleged that Character.AI’s chatbot engaged in a relationship with a 14-year-old boy that “encouraged his suicidal thoughts” before he died by suicide.
The AGs filed the Notice to put “all parties on notice of the regulatory issues that will need to be addressed in any sale or transfer of the Debtor’s business or assets … due to the highly sensitive nature of the conversations many users have with Character.AI chatbot characters, the large number of minors who use the product, the serious risks posed by specific features of the product, and the speed at which bankruptcy cases progress.” The specific instances cited by the Notice are chilling, and parents should review them and consider them when discussing the use of AI tools by minor children.
The AGs also list the regulatory concerns that they suggest need to be addressed in any sale of Character.
Kudos to the 40 AGs that are keeping an eye on the risks to consumers, particularly children here, and banding together to continue to protect consumers’ privacy. The tip here is to read the Notice, understand how these AI tools are collecting, using and communicating with children, monitor the use of chatbots and AI tools by your children, and discuss the risks with them so both you and they become more knowledgeable about the technology and the harms it can cause.