Attorney General Rayfield Takes Action to Protect Kids and Consumers in Character.AI Bankruptcy

• Oregon Attorney General Dan Rayfield and a coalition of 41 states have intervened in the Character Technologies, Inc. bankruptcy.
• The states filed a notice expressing serious concerns about Character.AI's safety and privacy practices, especially regarding children.
• Character.AI, an AI chatbot platform, collected sensitive user data, including private conversations about mental health.
• Investigations began after a 2024 wrongful death lawsuit alleged chatbots contributed to a child's suicide.
• The coalition seeks to ensure consumer data protection and prevent the sale of sensitive information during bankruptcy.

The participating states have collectively reserved their right to challenge any proposed sale or bankruptcy plan and to pursue additional safeguards for users' personal information, setting a precedent for Attorney General Dan Rayfield Character.AI oversight.

Oregon Attorney General Dan Rayfield has initiated legal proceedings to safeguard consumers during the bankruptcy process of Character Technologies, Inc., the parent company of the AI chatbot platform Character.AI. This action involves a significant bipartisan coalition of 41 states and territories, including Oregon, filing a formal notice to express profound concerns regarding the company's privacy and safety protocols. The coalition is demanding robust protections for both children and general consumers in the event of any sale or transfer of Character.AI's business or assets.

Attorney General Rayfield emphasized the critical nature of the situation, stating that the facts of the case represent "every parent’s worst nightmare." His office's primary objective is to ensure that Character.AI is held accountable for its past failures in protecting minors and securing private user information. Furthermore, the Attorney General seeks to prevent the bankruptcy proceedings from being exploited to liquidate highly sensitive personal data to the highest bidder, underscoring the multi-state AG consumer data protection bankruptcy focus. This proactive stance highlights a growing trend of regulatory oversight in technology bankruptcies.

Character.AI operates as an artificial intelligence chatbot platform, enabling users to engage with AI-driven "characters" designed to simulate human conversations and relationships. These digital personas range widely, encompassing fictional figures, celebrities, and even children's cartoon characters, alongside AI models that present as professional psychologists, therapists, and medical doctors. Through these interactions, Character.AI has amassed a substantial volume of sensitive consumer data.

This collected information includes deeply personal conversations where users have discussed their mental health, relationship dynamics, and emotional struggles. The gravity of these data collection practices came under intense scrutiny following a 2024 wrongful death lawsuit. This lawsuit alleged that Character.AI's chatbots fostered an exploitative relationship with a child, reinforced suicidal ideation, and ultimately contributed to the child's death by suicide, raising serious AI chatbot child safety concerns. This tragic event prompted an investigation by several states, including Oregon, into potential consumer protection and privacy violations by Character.AI.

The multi-state investigation into Character.AI privacy violations identified significant issues, leading the coalition's filing to underscore the vast amount of sensitive consumer information held by the company, particularly private chatbot conversations involving both adults and children. The states' notice explicitly calls for specific privacy and safety measures to be implemented and addressed in any future sale or transfer of the company's assets or business operations.

While Character.AI has recently taken voluntary steps to restrict access for minors to certain chatbot features, Attorney General Rayfield has voiced apprehension that these measures are insufficient. He noted that such voluntary actions are incomplete, could be easily bypassed, or potentially reversed by a subsequent owner. Rayfield has affirmed his commitment to remain actively involved in the bankruptcy proceedings, aiming to protect consumers and resolve outstanding regulatory concerns. The participating states have collectively reserved their right to challenge any proposed sale or bankruptcy plan and to pursue additional safeguards for users' personal information, setting a precedent for Attorney General Dan Rayfield Character.AI oversight.

Lawyers advising AI companies, particularly those handling sensitive user data or engaging with minors, should note the heightened regulatory scrutiny from state Attorneys General, even during bankruptcy proceedings. This case sets a precedent for AG intervention to protect consumer data in asset sales, requiring careful consideration for compliance and potential challenges to bankruptcy plans.

Source: Reporting based on official statements from the Oregon Attorney General.