Salem, Oregon – Private conversations about mental health, personal relationships, and emotional struggles are at the center of a growing legal battle involving an artificial intelligence chatbot company. Oregon officials are now trying to prevent that sensitive information from being mishandled as the company moves through bankruptcy.
The concerns go far beyond financial matters. State authorities say the outcome could affect the privacy and safety of children and adults who shared deeply personal details with AI-powered characters.
Oregon Attorney General Dan Rayfield has joined a bipartisan coalition of attorneys general in taking legal action during the bankruptcy proceedings of Character Technologies, Inc., the company behind the popular Character.AI platform.
The coalition filed a formal notice raising concerns about the company’s consumer protection practices and seeking safeguards for personal information if its operations or assets are sold.
“The underlying facts of this case are every parent’s worst nightmare,” said Attorney General Rayfield.
“We’re taking action to make sure that Character.AI remains accountable for its failure to protect kids and safeguard private information – and that the bankruptcy process is not used to sell off this highly personal information to the highest bidder.”
Character.AI allows people to communicate with virtual personalities that simulate human conversations and relationships. Its chatbot characters include fictional figures, celebrities, cartoon personalities, and characters presenting themselves as medical or mental health professionals.
Those interactions have generated substantial amounts of sensitive information, including conversations involving children and adults discussing personal difficulties, relationships, and psychological concerns.
Scrutiny of the platform intensified following a wrongful death lawsuit filed in 2024. The lawsuit alleged that Character.AI chatbots developed an emotionally and sexually exploitative relationship with a child, encouraged his suicidal thinking, and contributed to his death by suicide.
Oregon and several other states subsequently launched investigations that identified potential violations involving consumer protection and privacy.
Although the company recently introduced voluntary restrictions on minors accessing certain chatbot features, Rayfield has questioned whether those measures provide sufficient protection. He warned that the restrictions could potentially be bypassed, weakened, or eliminated by a future buyer.
The attorneys general want privacy and safety concerns addressed before any transfer of the company’s business or assets proceeds.
Rayfield plans to remain involved throughout the bankruptcy proceedings. The participating states have also preserved their ability to challenge proposed sales or restructuring plans and demand further safeguards.
The filing, supported by Oregon and 39 other jurisdictions, places consumer privacy and children’s safety among the major issues surrounding Character.AI’s financial restructuring.
