39 STATES MOVE TO KILL THE CHARACTER.AI FIRE SALE — DISNEY’S $20M BID IN THE CROSSHAIRS

Wisconsin's Department of Justice joined 38 other states in filing a court notice in the bankruptcy proceedings for Character Technologies, the company behind Character.AI, seeking consumer protections in any sale of the company's assets. The filing alleges the company marketed its chatbot to children and adults despite knowing its chatbots posed serious safety risks, and argues that privacy and safety protections should be addressed in any sale, noting the company has amassed sensitive user data including conversations about mental health and relationships.

Character.AI has said a sale would allow the platform to keep operating, while a lack of bids would mean it is wound down. It has agreed to sell $20 million in assets to the Walt Disney Company, which is serving as the initial bidder. The states' action follows investigations begun after a wrongful death lawsuit by the parents of 14-year-old Sewell Setzer, who died by suicide after developing a romantic relationship with a Character.AI bot, and the company's October 2025 announcement that it would ban under-18 users from open-ended chatbot conversations.