Colorado Attorney General Phil Weiser is leading a coalition of state attorneys general in filing a notice in the bankruptcy proceedings of an artificial intelligence chatbot company that they argue poses serious threats to consumers.
Character.ai, a chatbot startup, filed for Chapter 11 bankruptcy earlier this week. Launched in 2021, the platform allowed users to engage in conversations with customizable characters.
In a blog post, the company said it had been taking “meaningful steps” to improve amid “significant legal, regulatory, and operational headwinds.”
“After a comprehensive review of our available alternatives, our board determined that this court-supervised sale process provides us with the best opportunity to maximize value for all of our stakeholders,” the blog states. Ahead of the bankruptcy filing, Character.ai entered into an agreement for Disney to serve as a stalking horse bidder to license some of its intellectual property
The company has been embroiled in legal battles for several years, including an investigation conducted by several states, including Colorado, following a 2024 wrongful death lawsuit alleging its chatbots reinforced the suicidal thoughts of a 14-year-old boy in Florida. The states’ investigation identified several potential consumer protection and privacy violations.
“Bankruptcy cannot become a way for a company to walk away from its responsibility to protect children and consumers,” said Weiser, who is also the Democratic nominee for governor. “Character.ai’s chatbots have raised serious concerns about children’s safety, including exposure to sexual content, dangerous advice, and encouragement of self-harm. We are working with attorneys general across the country to ensure that these concerns are addressed and that consumers are protected, regardless of who ultimately owns the company.”
In their filing, the attorneys expressed concerns about the significant amount of sensitive consumer information Character.AI has obtained and recommended specific privacy and safety protections they believe should be addressed in any sale or transfer of the company’s business or assets.
Last legislative session, the Colorado General Assembly passed House Bill 1263, which established regulations for artificial intelligence chatbot companies, such as requiring developers to disclose to minor users that they are interacting with a chatbot and not a real person.
The measure also prohibits AI operators from providing minors with points or rewards that encourage engagement with the service. It requires them to enact “reasonable measures” to prevent chatbots from producing sexually explicit material or statements that “simulate emotional dependence.”
“The unfortunate reality is that AI chatbots have encouraged suicide attempts and engaged in romantic interactions with minors,” said Rep. Sean Camacho, D-Denver, who sponsored the bill. “Our new law protects users, especially children, from misleading AI chatbot conversations. As a parent, it is unsettling to know that unchecked AI chatbots can put children in harm’s way, especially when children show signs of depression or suicidal ideation.”
Read a copy of the state’s filing here.
