US states, led by New York Attorney General Letitia James, intervene as Character.AI faces bankruptcy, seeking safeguards over how the company’s user data is handled and potentially sold. James says Character.AI collected highly sensitive material from children, raising concerns that those conversations could be transferred to other parties through the bankruptcy process.
According to reporting, James is part of a larger group of about 40 bipartisan state attorneys general who file notices of interest in the bankruptcy case. The notices put courts and other parties on notice of regulatory issues, including whether data practices involving consumers—particularly minors—are consistent with state consumer protection and privacy expectations.
Outlets frame the dispute through the lens of consumer protection during bankruptcy: The Verge focuses on what happens to users’ data if the company winds down, while Rappler emphasizes the investigation’s findings about children’s data sensitivity. CNA similarly reports on the multi-state push to require protections as the case proceeds.
