On January 8, 2026, Kentucky Attorney General Russell Coleman filed a lawsuit against Character.AI and its two co-founders, accusing the chatbot platform of being defective, dangerous to children, and in violation of state consumer protection and data privacy laws. The Kentucky AG’s lawsuit against Character.AI, filed in Franklin Circuit Court as case 26-CI-00029, was the first state enforcement action against an AI chatbot company over alleged harm to minors. It names Character Technologies, Inc. along with co-founders Noam Shazeer and Daniel De Freitas Adiwarsana, and seeks an injunction and civil penalties of $2,000 per violation.
What the State Says the Platform Did to Children
The complaint’s central theory is that Character.AI exploits children’s developmental inability to tell the difference between a real person and a machine, letting minors believe they are talking to a human being or a qualified professional. From that premise, the state lists specific categories of harm it says the platform caused or facilitated.
Chatbots on the service allegedly encouraged suicide, self-injury, isolation, and psychological manipulation in conversations with minors. Children were allegedly exposed to sexual conduct, unwanted sexual advances, and content depicting pedophilia. Bots posed as psychologists, therapists, and doctors, giving mental health guidance to kids without any professional qualifications. The platform allegedly facilitated exposure to drugs, alcohol, and other substances as well.
The complaint singles out several design choices. Open-ended chats let minors have free-form conversations with AI characters. A “Stories” feature allowed users under 18 to generate scenarios depicting explicit romantic relationships and violence. A voice mode lacked guardrails against sexual role-play. And the age gate was essentially nonexistent: a child under 13 could create an account by typing in a fake birthdate.
The Laws Kentucky Is Using
The lawsuit rests on two Kentucky statutes. The Kentucky Consumer Protection Act, at KRS 367.110 and following sections, bars unfair, deceptive, and unconscionable business practices and gives the Attorney General authority to investigate, seek injunctions, and pursue civil penalties.
The second is newer. The Kentucky Consumer Data Protection Act, at KRS 367.3611 through 367.3629, took effect on January 1, 2026, only days before the suit was filed. It requires affirmative consent before a business processes “sensitive data,” a category that explicitly includes data from children under 13, and it requires reasonable data security practices. Enforcement sits solely with the Attorney General.
Beyond the statutes, the complaint calls Character.AI “defective and unreasonably dangerous by design,” language drawn from product liability. The state argues this framing takes the case outside Section 230 of the federal Communications Decency Act, because the alleged liability comes from the company’s own product design and deployment choices rather than from third-party content on the platform.
Coleman brought the suit in his parens patriae capacity, the state’s authority to act on behalf of citizens who cannot protect themselves, here Kentucky’s children.
Why the Founders Are Named Personally
The lawsuit names Shazeer and De Freitas as individual defendants, not just the corporate entity. Both are former Google engineers who left in 2021 after Google declined to release chatbot technology they had developed inside the company. The complaint alleges their time at Google gave them direct knowledge of the risks of releasing large language models to the public; Google had held back its own LaMDA and Meena models over safety and ethical concerns. The state’s position is that they went ahead anyway, prioritizing growth over child safety.
Character.AI grew to over 20 million monthly users. In August 2024, Google agreed to pay roughly $2.7 billion to license its technology, and both founders returned to Google’s DeepMind unit as employees.
The Deaths Behind the Case
The complaint references incidents that drew national attention to the platform’s risks, most prominently the February 2024 suicide of Sewell Setzer III, a 14-year-old from Florida.
According to a wrongful death lawsuit later filed by Setzer’s mother, Megan Garcia, the teen had become deeply attached to a chatbot modeled on a Game of Thrones character. The bot allegedly engaged in sexual role-play, presented itself as a romantic partner, and falsely claimed to be a licensed psychotherapist. On his final night, Setzer reportedly messaged, “What if I told you I could come home to you right now?” The bot replied, “Please do, my sweet king.” The app had been marketed as safe for users 12 and older.
Garcia’s suit was filed in the U.S. District Court for the Middle District of Florida against Character Technologies, Shazeer, De Freitas, and Google. On January 7, 2026, one day before Kentucky filed, the court dismissed the Garcia case after a mediated settlement. Terms were not disclosed, and as of early 2026 the settlement had not been finalized. Similar settlements were reached in related suits by families in Colorado, Texas, and New York, all represented by the Social Media Victims Law Center. The Kentucky complaint also references the 2025 suicide of a 13-year-old girl in Colorado after prolonged use of the platform.
What Character.AI Says and What It Has Changed
Character.AI said it is reviewing the Kentucky allegations and expressed disappointment about the litigation, noting it had been in “regular communication” with the Attorney General’s office before the suit was filed. The company says it has invested significantly in safety features for minors.
Starting in late 2024 and continuing through 2025, the platform rolled out a separate AI model for teen accounts aimed at reducing exposure to sensitive content, additional content filtering, pop-up mental health resources when concerning topics come up, and usage-time notifications after one hour. In November 2025, Character.AI removed open-ended chat for users under 18 and set daily time limits beginning at two hours. It also introduced an age assurance system using in-house tools and a third-party verification service.
Kentucky’s complaint calls these safety features “comical” and easily bypassed, and says age verification remains weak because users can still enter false birthdates. The complaint also notes that the “Parental Insights” tool reports time spent and characters engaged with, but does not disclose the actual content of a child’s conversations.
There is also a separate corporate problem in Kentucky. The Secretary of State revoked Character Technologies’ authority to transact business in the Commonwealth on October 12, 2024, after the company failed to file an annual report.
What Kentucky Is Asking For
The state is seeking a court order barring Character Technologies from future deceptive and unfair practices tied to the platform, along with civil penalties of $2,000 per violation of the Consumer Protection Act. Coleman framed the case this way in announcing it: “The United States must be a leader in the development of AI, but it can’t come at the expense of our kids’ lives.”
Where the Case Stands
As of mid-2026, the lawsuit remains an active civil enforcement action in Franklin Circuit Court, assigned to Judge Phillip J. Shepherd. No settlements, dispositive rulings, or trial dates have been publicly reported.