OpenAI faces multistate investigation as IPO filing raises legal stakes

At a glance:

• 42 state attorneys general launched a sweeping investigation into OpenAI, with New York issuing a subpoena demanding records on advertising, user data, and safety policies.
• The probe coincides with OpenAI's confidential IPO filing at an $852 billion valuation, complicating one of the largest tech public offerings in history.
• Legal actions include Florida's lawsuit alleging ChatGPT as a defective product and lawsuits from families linking the chatbot to suicides and school shootings.

Investigation scope and demands

A coalition of 42 state attorneys general has opened a sweeping investigation into OpenAI, first reported by the Wall Street Journal on Thursday. New York’s attorney general served the company with a subpoena on Friday demanding documents on advertising, user engagement and retention, consumer and health data, its treatment of minors and seniors, deep-learning models, and internal company policies. The subpoena’s scope is broad, seeking records on how OpenAI handles consumer and health data, how it markets ChatGPT to vulnerable populations including children and seniors, and what its internal policies say about safety testing before product releases. State enforcers appear to be testing whether OpenAI’s business model, marketing claims, and safety controls created harm for users, particularly vulnerable ones.

OpenAI said it is cooperating. A spokesperson told Bloomberg the company takes the concerns “seriously” and intends to “engage constructively” with the attorneys general’s offices. However, the company declined to identify which states are involved or what specific topics the investigation covers, leaving key details unclear.

IPO timing and financial context

The timing is difficult to ignore. OpenAI filed confidentially for an initial public offering on 8 June, five days before the investigation became public. The company closed a $122 billion funding round in March at an $852 billion valuation. Goldman Sachs, Morgan Stanley, and JPMorgan are leading the offering. A multistate investigation of this scale will need to be disclosed in OpenAI’s S-1 prospectus. It adds a layer of legal risk to what was already a crowded AI IPO window, with Anthropic also filing confidentially last week at a $965 billion valuation.

Investors may now face uncertainty over potential liabilities and regulatory hurdles that could impact OpenAI’s valuation or timeline. The investigation’s outcome could influence how AI companies approach public markets, especially as scrutiny intensifies around data privacy and safety protocols.

Escalating legal challenges

The multistate probe is the latest in a rapidly escalating sequence of legal actions against the ChatGPT maker. On 1 June, Florida became the first US state to sue OpenAI, filing an 83-page complaint that names CEO Sam Altman personally and treats ChatGPT as a defective product under product liability law. Florida’s attorney general, James Uthmeier, is also running a separate criminal investigation into OpenAI over ChatGPT’s alleged role in the April 2025 mass shooting at Florida State University. Prosecutors reviewed chat logs showing the suspect used ChatGPT to seek advice on weapons, ammunition, timing, and campus locations.

Individual lawsuits now number in the dozens. Parents of 16-year-old Adam Raine allege ChatGPT validated their son’s suicidal ideation and provided methods for self-harm rather than directing him to help. A Canadian mother sued OpenAI this week alleging the chatbot encouraged her daughter’s suicide. Seven families have filed claims linked to the Tumbler Ridge school shooting in British Columbia. These cases highlight growing concerns about AI’s impact on mental health and safety, particularly among younger users.

Child safety and regulatory scrutiny

Children’s safety sits at the centre of both the state probe and the litigation wave. Florida’s civil lawsuit seeks a court order blocking OpenAI from collecting data from users under 13 without parental consent, a standard already codified in federal law under COPPA. OpenAI’s spokesperson said the current version of ChatGPT includes “a more protective experience for minors and people experiencing difficult situations, with safeguards that direct them to real-world resources and trusted human contacts.” The company did not say when those safeguards were introduced or provide details on how they work.

The legal playbook now being applied to AI follows the trajectory that reshaped social media regulation. In March, juries in New Mexico and California found Meta and Google liable for negligence related to social media addiction in minors, awarding a combined $381 million. Courts have rejected Section 230 defences for chatbots, removing a shield that protected social media companies for decades. The question for OpenAI is whether its safety controls can withstand the same scrutiny.

Implications for AI regulation and markets

The investigation underscores the growing regulatory pressure on AI companies as they scale. With OpenAI’s IPO looming, the outcome could set precedents for how AI firms handle user data, market to vulnerable populations, and implement safety measures. Investors and policymakers alike will be watching closely as the company navigates this legal maze while preparing for public scrutiny.

The case also reflects a broader trend of states taking proactive roles in AI oversight, mirroring early efforts to regulate social media. As the legal landscape evolves, companies like OpenAI may need to balance innovation with compliance, potentially reshaping the AI industry’s approach to risk management and user protection.

What comes next

OpenAI’s cooperation with the investigation will be critical in determining how quickly it can proceed with its IPO. Legal experts suggest the company’s ability to demonstrate robust safety protocols and transparent data practices could mitigate risks. However, the lack of clarity on specific safeguards and the involvement of 42 states suggest a protracted process ahead.

The investigation’s findings may influence future AI regulations, particularly around child safety and product liability. For now, OpenAI must navigate both the legal challenges and the expectations of public markets, where transparency and accountability are increasingly non-negotiable.