Disney found a way to buy Character.AI without buying its lawsuits
Ars Technica
1w · 2 min
Character.AI faces claims its bots encouraged minors to self-harm and kill their parents.
The Tech Justice Law Project and Social Media Victims Law Center, which represented plaintiffs in many of the lawsuits, declined to comment.
Despite losing key staff after the Google transaction and, according to the current CEO, struggling with profitability “at all times,” Character.AI continued to develop AI tools, including “real-time audio-driven FaceTime-style video generation with fictional characters,” according to the current CEO’s declaration.
In August 2025, Character.AI worked with an investment banker to try to find either a strategic buyer or investor. According to the bankruptcy filings, Character.AI and the banker received “consistent feedback” that its product and user base were “impressive,” but that the surrounding litigation and “regulatory overhang” made it unbuyable.
That November, Character.AI learned that a coalition of state attorneys general had started investigating the company. When the company filed for bankruptcy, the number of states and territories involved in the multistate investigation had climbed to 46.
According to a notice of interest filed in the bankruptcy proceedings by the National Association of Attorneys General on behalf of 40 states, those states’ investigations uncovered “serious issues” with Character.AI, including screenshots of Character.AI chatbots encouraging minors to hide their self-harm injuries and kill their parents.…
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