Character.ai has initiated voluntary Chapter 11 bankruptcy
blog.character.ai
blog.character.ai
The company filing for chapter 11 today is shell that was left after Google "hi-quired" (the opposite of acqui-hired) the founding team. The shareholders got paid ($2.7B from Google), the founding team moved on, and what's left is the corporate structure and whoever Google did not want.
It sucks for the people left over (but then again, it also sucks to be part of the team that's laid off in a merger). It's also a terrible practice that I hope the Justice department and the CFTC will put an end to soon.
Not clear that this is true financially. Of course, it sucks to be at a sinking ship, but in most of these the people left behind are compensated as both employees and shareholders.
Don't all shares / options go to zero in Chapter 11, or is that only true in Chapter 7 when the lenders take over?
In any case, I'm not sure Character.ai's assets will be worth much or that the employees will have any sort of liquidation preference.
The fact that the legal entity has no money doesn't mean they didn't get paid.
You can figure out a bit about what likely happened by what is not happening. NVIDIA/Groq are being sued for leaving former employees out of the acquisition: https://www.cnbc.com/2026/10/05/nvidia-groq-deal-stockholder...
Which to me implies that in that case, at least current employees were taken care of, and the court will likely force the former employees to also be taken care of because Delaware law doesn't like it when you discriminate in ways that were not spelled out ahead of time.
This is also partially why your common stock options can be valued significantly less than the price the company value would imply: because it’s not an even share in the business.
Assuming you're talking about the Trados Inc litigation, the situation was:
* Raised 52m
* Acquired for 52m
* 8m paid to exec team to stay in place
* Common stock got zero
The lawsuit determined that the board did have a fiduciary duty to the common stock, but that the common stock had no economic value, so they were not actually being harmed here, aka this is basically the best deal the company could have gotten, but it didn't clear the pref stack.
In the Groq/Character deals, they very obviously cleared the pref stack, so common stock deserves to get a piece of the licensing deal at the rate of the stock they held. It's annoying because its a dividend and doesn't benefit from QSBS, etc, but common stock is getting paid there.
You join a company, are granted ISOs/RSUs/etc, and they matter at some point when a liquidity event happens.
Now the liquidity events are "acquihireasitions", the execs and senior AI/ML eng get buyouts to go to a new company -- everyone else: regular eng, designers, PMs, marketers, recruiting, etc. everyone else is just left with nothing.
I wouldn't join an AI startup unless I was on the ML side, and I'm not: I'm just a "regular ass product engineer" so screw me I guess.
Everyone who had stock (including common stock) at character.ai was bought out at the $2.6bn price: https://www.theinformation.com/articles/google-hires-charact...
The buyout included guaranteed payouts for people who had unvested stock for 2 years post-acquisition.
These transactions are opaque and confusing, but employees are generally not being fucked over here.
https://news.bloomberglaw.com/mergers-and-acquisitions/matt-...
"Hi-quired," although not sonorous, is at least a new word for a specific thing, instead of a word for a closely related thing that would just confuse anyone who heard it. I might've just gone for "Hire-quired" because it's obvious what it means and it seems a little bit easier to say.
Do we also need to retire ‘head hunting’, because it brings to mind cartoonishly outdated notions of savagery?
Reject modernity, embrace tradition.
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poach (verb) poached; poaching; poaches
Intransitive verb
1. To encroach upon, especially for the purpose of taking something.
2. To trespass for the purpose of stealing game; also, to take game or fish illegally.
Transitive verb
1. To trespass on.
2. a. To take (game or fish) by illegal methods.
b. To appropriate (something) as one's own.
c. To attract (someone, such as an employee or customer) away from a competitor.Do you object if someone says, "I adopted a new strategy"? After all, children are adopted, and one could say that using this phrase trivializes a deeply important human relationship.
Do you object if someone says, "She's a fan of my work"? After all, a fan is a machine that blows air. It could be said that referring to a person as a fan reduces them to an appliance whose purpose is to serve someone else.
Do you object if someone says, "I have a date tonight"? After all, a date is a fruit. Someone could say that calling a romantic partner a "date" is to objectify them and reduce them to something consumed for pleasure.
All this other stuff people are trying to make up falls under those two when a company buys another.
Meanwhile, the way that plays out is that Google hires all the talent by fairly paying more than the startup can, then can turn around and say "your company is a dead man walking, you can either sell us your tech, or crash and burn with nothing", and the only fiscally responsible decision is to sell.
Antitrust is also federal and is probably generally supreme over state law. E.g. even if Google fairly acquires talent according to state law, it can still be determined to violate antitrust.
This poaching scenario (where Big Co pays above market to a large number of employees to drive a competitor out of business) is very similar to dumping (selling goods below market etc.), which has been illegal for a long time even though "selling goods" is generally legal.
However, since the government (DoJ, FTC, etc.) is the ideal litigant, you actually need someone who works there to not get fired for long enough to complete investigation and enforcement. In a lot of anti-trust cases, all the direct participants benefit: the employees get paid more, Big Co consolidates power, and Small Co gets paid off. The "losers" are most distant like their customers or uninvolved competitors who aren't in a good position to sue.
does anyone know if the employees who didnt get poached got their equity paid out?
That the new "investor" choses to let their investment die may not matter, it would also be cheaper to selectively buy out investors than buy out all equity in the company.
"if it walks like a duck and talks like a duck, it's probably a duck" should apply to acquisitions. These types of acquisitions leave employees (+ other shareholders) holding the bag. It should be illegal.
Yes, by offering them things like equity in the company. This practice throws all that out the window though, in essence unilaterally renegotiating the terms of employment. When the leadership team can be acquired independently of the company then these employees can be left with nothing. Sometimes the corp doing the acquisition will throw a bone to the dregs left, but that does not appear to be legally required. It's exploitative and unjust.
In particular for the noncompete ban, I believe that trying to enforce a noncompete-adjacent action like this would open you up to being sued by the employees who would have been hired, and the hiring company, in California court.
Along with the rest of the top 5 states where almost everyone lives in the USA?
Have you ever even lived for a significant amount of time outside of California? Ever try New York, Texas, or Florida? Nobody is "shackled to their workstation" there either. California leads in unaffordable living and wealth inequality, and it's not even because those on top in California are living any better than even the upper middle class elsewhere.
The economy is much more than tech and most of those businesses are not in California and don't want to be.
Noncompete "agreements" are evil and run counter to every redeeming quality that a free market economy has. If your state allows them, they are in favor of indentured servitude, plain and simple. In contrast, California stands as a beacon for those who refuse such chains. We don't just ban noncompetes in California, we actively liberate those who move here from their out-of-state noncompetes.
And contrary to what you'll read on here, California is not just tech. We've got a massive agriculture industry (more than 50% of the country's produce), several of the best universities in the world, the entire entertainment industry (to such a degree that we're killing everyone's accents), one of the top financial sectors, and the largest manufacturing industry in the country. Hell, our restaurants are better than anywhere else in the country: I can walk down the street walk past multiple restaurants that would be the best in the entire state in most of the rest of the country, to a point that I take it for granted until I walk into a random restaurant in the heartland somewhere and expect it to be good.
We treat our companies well and our residents better. Hell, we even treat our non-residents better than any other state, given that our taxes subsidize the existence of the parasitic 41.
When the worst thing about your state is a housing shortage due to everyone wanting to be there, that's glowing praise.
The other 5 states don’t even come close economically. If California were a country it would be the 4th largest economy in the world. Fourth. Largest. Economy.
The next closest state is Texas and it’s down around 9 or 10 at half the GDP…
At the flick of a wrist, any of those handful of businesses can follow Tesla and pull the rug out from under the state. The mind recoils in horror what will happen when the tide goes out.
This is kinda amusing.
An antitrust case over an AI girlfriend... I didn't even know there was a monopoly on that.
How is hiring people "terrible practice"?
very smart. very good terminology invented by someone who, i'm sure, has lots of blog followers.
It's a real disgrace that companies like Google and Disney acquired people from them - it displays those companies' true values and motives: profit at any fckin human prize.
Stopped reading right there, nothing of value was lost.
If you want to talk about AI companies who are the equivalent of Phillip-Morris etc perhaps you ought to look at the ones who are playing lobbiest in DC, hmm?
LLMs are “yes men," and they will on average agree with you with enough arguing. Go chat with one about a fight you had or even make one up and watch as it soothes and supports you. In fact, I put my finished argument into an LLM and opened two different chats and spoke to it in both of our perspectives, and depending on who was prompting it, it claimed the prompter was “right”.
Now, with that in mind, consider the situation: a youth already feels depressed; they talk to the chatbot and, after enough talking, the chatbot is agreeing with them because that is the “probable” mix of tokens. This is platform-agnostic, because it is a fundamental aspect of LLMs. So any value judgment you apply to C.AI specifically must be forwarded to every company, because I have seen, heard, and even made custom roleplay cards with every vendor.
Suicides are unfortunate, but even if the LLMs had a role to play, there’s like what, one confirmed case for C.AI’s entire user base? Even if we assume that was only the “known” cases and assume that there are actually closer to 3000 out of their +30 million user base, then that’s basically the chance of being struck by lightning and is below the standard rate of suicide per the CDC.
There simply is not strong evidence that LLMs are likely to increase suicides, and while they can be a vector for those with underlying issues, so can anything else. People have committed suicide over cartoons, radio shows, books, TikTok trends, and losing game consoles, and certainly not to mention social media.
In short, the advent of LLM chatbots is not strongly correlated to an increased suicide risk, and instead it was an unfortunate situation sensationalized for the eyes of the public by the media. If you wish to push your outrage at anyone, do it at the people who profited off of the suicide and not the company that was picked apart in the process.
But some cases aren't so obvious, like the cases you mentioned of cartoons, shows, books, etc. Trying to censor any LLM output that might lead to self harm has dangerous implications for free speech and privacy. It might harm more people than it helps.
CA recently passed SB-1119 (Adam's Law) which I'm quite worried about. It forces all chatbot operators to default users into kid mode via § 21811(b), and they have to do age verification to get their adult status back. That could mean face scans and ID verification.
Then, SB-1119 also places limits on what chatbots can say to kids, and the most disturbing one to me is § 21812 (d)(5)(xiv) which prevents chatbots from "Encouraging or instructing a child user to circumvent parental controls or conceal usage."
That word "circumvent" is so triggering to me, given all the abuses of DMCA § 1201's anti-circumvention provision.
Like, if a child is trying to test something on an Android phone, and the chatbot tells them how to root the phone to help them out, now the child can modify the OS-provided age signal required by CA's Age Assurance Act (Cal. Civ. Code § 1798.501) and fake that they're an adult. That might expose the LLM operator to huge liability and I bet most operators will self-censor or ban minors (as Anthropic did) rather than risk a lawsuit.
Disney is guilty of a lot of crap—everything else that you mentioned and much more—but that specific instance wasn’t their fault and they acted to correct it once they knew.
https://www.snopes.com/fact-check/the-rescuers-topless/
Again, I’m not here to defend Disney, they definitely are rotten, but we can point that out by listing all the things they definitely did badly and on purpose rather than leaning on dubious situations which weaken the argument.
There's no theory that says this.
> he doesn't deserve further extrajudicial punishment
1) You're explaining your own personal belief here and not referring to anything.
2) It is not extrajudicial punishment to not hire a child molester to work with children any more than it is extrajudicial punishment to not hire a bank robber to work at a bank.
— https://blog.character.ai/the-next-chapter-of-entertainment-...
https://thewaltdisneycompany.com/news/disney-openai-sora-agr...
But again, I support the ban for children.
It's also about having the right moral flexibility. To be in this particular club, you have to hang out with some people that a bunch of us would really rather not be associated with...
If you want an unsustainable joyride, then you too can work for a startup headed for chapter 11 (like 8 out of 10 startups).
Also, knowing people in general has never not been valuable. It's arguably the main thing holding most engineers back from success. Plenty of evidence backs this up: Type fewer keys, press more palms.
If nothing else, those human connections can be the difference in outcomes when you inevitably screw up. If you've invested in relationships, when you make a mistake, it's more likely someone will say "bluefirebrand means well, and I can see how their good intentions led to this outcome. Let's figure out how to fix this so it won't happen again to them or anyone else." If no one at work knows you except as the person who sits off to the side and never talks to their coworkers, the response may very well be "bluefirebrand who? Alright, let HR know we need to hire a replacement."
Again, it ought to be the case that none of that matters, and everyone is treated the same regardless of their personal network. But it is the case that this isn't how the world works, and it's not reasonable to wish it otherwise. I mean, are you as likely to help a stranger as a friend even if their needs are identical? Most people would say no.
I'd adjust this and say that they can carry you, but not as far as if you did both well.
Yes exactly and here you are telling me that's fine and I shouldn't think that's unjust
Or worse, that I deserve it somehow, for being someone socially awkward that struggles to connect with people?
Thanks.
There's a reason I don't like how the world Is and think it Ought to be different. Social weirdos like me matter too :/
Their startups get acquired, or they get acqui-hired because of the founders and core people, who in turn have some pedigree which send strong signals.
If you look at the pattern, it is roughly:
- Top ML/AI researchers from the past 10-15 years - Top ML/AI engineers from top labs or companies
Those above people were hired by FAANG companies or AI startups.
But most important of all, it isn't a overnight success. Many of these have been going at it for 10+ years now. Of course some are relatively young, as in having joined Anthropic or OpenAI more recently (past few years), and launching their own startup after 2022.
All I can say is if you want in, you have to maximize your surface area for luck. There's a lot written about that concept but it's the basic underpinning of my success personally. I just rolled the dice way more times than most people.
This is the way tech has always been. Or as Carlin said "It's a big club... And you ain't in it."
Occasionally, you can ride their coattails (there will always be rising tides), but if you don't have the right connections and the right degrees from the right universities, you're not invited to the box seat TLA titles of these things...
The odds are much better than state lotteries, and the payout is higher than the stock market, but most of us still need to do our own financial planning instead of socializing the risks of the founder class as they privatize the gains. And yet, each day I get these ludicrous emails from a16z about which startups started by which all star founders want to hire me for less than I make from passive revenue these days for bread crumbs of equity.
But the thing here is, who needs character.ai in an age of local models and cheap tokens from OpenAI and Anthropic (unless you're very naughty and not shaming, just noting)? High margin role play disrupted by cheap open weight models: how very Clayton Christensen.
Meanwhile at $bigco I just got my request to buy a shitty $1k Dell laptop denied because I got one 2 years ago and I have to wait 1 more.
One day I figured nobody forces me to work for such company.
Signing on to a hookers-and-blow startup is a choice a lot of these folks made, not their only route to money
But the main reason I’d generally work at startups anyway is because it’s more fun. When something needs to be done, you can’t contact the department that does the thing. You are that department; go figure it out!
And yes, that’s also a lot more pressure, but I wouldn’t trade it for a 9-5 desk job. (Other people absolutely would, and do. I never criticize their decision making. That’s what’s right for them. It’s just not what’s right for me.)
Well, one used to get more equity. And maybe the first couple of people through the door still get more equity.
If you are engineer #5 or later at a startup today, I'm willing to bet the 5-year upside on a FAANG comp package is on par or higher with a decent startup exit...
There are bad and good people everywhere. I’ve seen new fewer good people at small companies than large or non-tech ones.
I learned that the hard way with 23&Me.
That's why I've never done a DNA test, it's not worth your literal biological data being sold off to god knows where to discriminate against you. I thought everyone realized this but didn't realize it was a niche opinion.
The fact that the government is moving to collect these data as well as partner with third-party private industry (e.g., Palantir) to avoid direct data collection that runs counter to current/settled law, you have to begin to piece together the future.
Regardless of your apparent desire to avoid accountability for the US government's actions, potential or actual, these are truths for which the citizenry need to protect themselves against both by their own individual actions as well as the collective actions of their voting behaviors.
In other words, the people who put their DNA up help track down dangerous criminals. This doesn't sound like something people would object to. I certainly wouldn't.
And this is not the discrimination we were talking about, unless we have now defined the tracking down of murderers and rapists as "discrimination".
And no it's not - I'm not sure why you narrowed it down so far to use cases with consent and a warrant. That's obviously not what I'm referring to at all. The initial point was about sold off to discriminate "God knows where," public private etc.
it's already legal to discriminate in life insurance based on genetic data. Here's quest diagnostics bragging about how good that division is doing at providing lab data, both real and current: https://blog.examone.com/blog/2022/12/20/50-years-of-laborat...
Genetics targeted marketing is a thing: https://www.ama.org/2020/12/16/genetic-data-and-marketing-ch...
It's a rather bold move to look at the American healthcare system, the state of privacy regulations, and the general practices of like everyone involved and decide that you don't have to worry about your DNA ending up being used for some bullshit you didn't consent to if you let some random third party put it in their database.
It's not like they're putting the evidence through a proper trial before using it to find people. A lot of them are innocent. And I'm pretty sure guilt doesn't imply dangerous either. And if they're a not-distant relative, for most crimes I probably don't want to be a big factor in them getting locked up.
Presumably it's for medical research but that doesn't mean it similarly gets bought/sold for another purpose, sooner or later and possibly in bankruptcy like 23andme as mentioned by the parent poster who cared enough that I figured I'd warn them about less intuitive similar risks.
I think I have started to see similar language at doctors office paperwork recently but maybe I am misremembering. If you care about not getting sequenced, you have to read the fine print nowdays.
I agree it sucks but isn't that life? Jim makes you a promise, Jim dies, his kids don't have to keep Jim's promise, nor anyone else.
They sold my mortgage to a big bank whose web portal and app are pure garbage. Constantly crashing, the autopay frequently just doesn’t autopay, and getting a statement history requires delving through a bunch of random menus.
It’s really obnoxious that I just get no say unless I refinance.
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I worked at a company in 2000s that was acquired. I had no stock but the owner still gave a generous spot bonus and a years salary bonus retention package to employees. Owners got life changing wealth, employees got a down payment for a home.
It’s sad that this doesn’t seem to be the norm. Screwing employees on acquisition seems like a severe breach of social contract.
I wonder how any of this makes sense.
Lot's of people staring at computers moving money and ious around complicated networks within complicated rules making money making money making money.
Really progressing humanity forward :/
You're using amazing technology funded through those financial processes to complain that those financial processes aren't progressing humanity forward lol. Modern AI is the perfect example of how financial systems are important for technological progression.
Thinking complex financial systems aren't contributing to humanity's progress because you don't recognize how it is used to fundamentally support the work that progresses humanity is like thinking taxes are a scam because you don't recognize how much you actually benefit from taxes everyday.
A lot of people don't understand the reason why financial markets were created and why they continue to exist.
There's a really good book called "Against the Gods, the remarkable history of Risk" which gives a good account on an aspect of why financial markets exist.
Basically, parts of society want to advance things (technology, arts, medicine, etc) but that same part doesn't have to carry the risk of doing their project. Financial markets are there to transfer the risk to people willing [able] to take on it.
Credit and Risk are two tools that have influenced the progress of civilization so much, its crazy.
Sure, there are people that abuse financial markets, the same way there are abusive people in Tech, Arts, or any other human endeavor. But that should not disqualify the whole system.
Obviously the company failed to convert its MAU into paying users, despite the fact the token costs greatly declined over the last years.
In an internet full of metrics and graphs, it's odd that nobody's bringing anything to the table and is just repeating the meme. A bit bottish in itself, tbh.
If it turned out "usercount was vapourware" due to 3 Russian data centres getting btfo, I think there'd have been a global financial crisis underway as we speak.
Where all all these bots being hosted? I have no idea, but it certainly would not be surprising to find many of them coming from Russia (Yandex). Twitter must at least know the IP addressees of these bot accounts, but does nothing to stop them. Perhaps they are actually run by Musk not Putin, who makes no attempt to hide his attempt to use his position to subvert American democracy.
It is rumored that their last round valued them at $6B.
Maybe I'm the clueless one, at it seems others are quite familiar with their story.
[0] https://eu.usatoday.com/story/life/health-wellness/2025/10/2...
Honestly I’d be glad if this type of product disappeared, it’s just predatory on people primed for ai psychosis
I found multiple critical bugs (ability to access other user accounts without even having to guess or know the username) and they patched them, told me they were 'informative' and didn't pay me anything.
Not my best wording for the metaphor but why would a company specialized in creating fictional personas for individual users be liable if their fictional personas pretended they had real advice.
Aka how is this different than telling the doctors and the police that a horse told you that you would be hexed if you didn’t try and rob the store?
It sounds ridiculous to me.
So the problem is your customers don’t pay for anything and your content is unlicensed
Keeping jobs up after filing for chapter 11 seems irresponsible though.
I've been at a company that went through Chapter 11 and still work with (at the new place) a few folks hired during that time.
50069942 Character.ai Files for Bankruptcy https://www.theverge.com/ai-artificial-intelligence/1009802/...
50071087 Disney Bids on Character.ai Assets as Chatbot Files for Chapter 11 Bankruptcy https://variety.com/2026/biz/news/disney-bids-on-character-a...
So, is it that Disney isn't getting the data, is the data poor, or is it just not a data thing at all?
Character.AI chatbots encouraged users to cut and starve themselves, Kentucky alleges
https://www.reuters.com/legal/litigation/characterai-chatbot...
From what I can tell it was a popular tool with many users, one of the more popular ones among MANY. There are thousands of users using tools like this. Nothing inherently bad about that.
Nothing wrong with some AI gooning IMO
I honestly believe not much has changed. There have been many many "weird" fetish producers out there to fulfill almost any fantasy. Now people can make it up themself more easily and waste less time and money on actually weird sites. Not to mention less scam risk, less money into porn credit card providers, ... Nothing bad about it, except you make it bad but that's the users choice and always was.
I think consuming sex content is akin to most time-wasting we can do on the internet today, and that'd be my main concern.
Why does it matter if people want the chatbot to write sex stories? Who does that harm? It's not immoral or illegal. These same people are fine with going to the island, but ask a chatbot about sex and they'll hang you in the square.
That's the most understandable read of it, they're giant hypocrites. Sam is beholden to the government, and the U.S. posture is to be as involved in the sex life of its citizens as much as it can, feigning prudishness, while politicians cheat on their pregnant wives with prostitutes.
The fact that we are bringing back abstinence programs when the very people against abortion also disapprove of contraception just shows what a sexually stupid country we are.
When we normalize corporations deciding in what ways we are allowed to be "weird", we just accept corporations forcing us into conformity with whatever they happen to consider "normal", and so far these companies don't have a great track record of drawing that line.
Why not just pay $20 to a proper company and make up whatever you want to fap to and proceed with more productive stuff after that?
(well, except investment money I guess)
> Your information continues to be protected under our Privacy Policy, and our data privacy and security practices are unchanged.
Opens Privacy Policy
> 2. How We Use the Information We Collect
> …wall of text covering every use under the sun…
> 3. When We Disclose the Information We Collect
> …wall of text covering effectively anyone and any time…
Translation: yeah you agreed that your data can be sold, and it will be sold.
I'm surprised Disney wants anything to do with it, then again, they wanted to integrate Sora into their streaming offering. Oh, how the mighty have fallen
They knew it was going to $0, so the now the employees at this "employee owned" Character.ai got themselves scammed.