EU intensifies scrutiny of Musk’s xAI buyout amid potential Digital Services Act penalties

The European Commission has intensified its scrutiny of Elon Musk’s acquisition of X by his AI startup xAI, completed in March 2025 for $33 billion. Regulators are examining the corporate structure changes resulting from the merger and evaluating whether X has complied with the Digital Services Act (DSA).

This investigation follows preliminary findings from July 2024 that X violated DSA rules by misleading users through its paid blue checkmark verification system. The EU’s probe, initiated in December 2023, now includes fresh inquiries into how the acquisition impacts regulatory compliance and potential penalties.

Potential penalties under the Digital Services Act and enforcement mechanisms

Under the DSA, companies found guilty of substantive violations can face fines up to 6% of their annual global turnover. Procedural infractions carry lower penalties, but repeated or unresolved violations may lead to more severe consequences, including periodic penalty payments or even temporary bans on operating within the European market.

The EU’s enforcement framework emphasizes transparency, user protection, and accountability, with massive online platforms like X subject to direct oversight by the European Commission.

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The Digital Services Act allows the European Commission to impose fines up to 6% of a company’s global annual turnover for serious violations, making it one of the toughest regulatory frameworks for digital platforms worldwide.

Corporate restructuring as a strategic move and regulatory challenge

Musk’s acquisition involved an all-stock transaction valuing xAI at $80 billion and X at $33 billion, effectively placing X under xAI’s umbrella. This restructuring aims to consolidate Musk’s tech ventures, streamline investment, and integrate AI capabilities with social media reach.

However, the EU views these structural changes as potentially influencing the calculation of fines and regulatory obligations. The Commission is closely monitoring these developments to ensure compliance and fair competition within the European digital market.

The blue checkmark controversy and its regulatory implications

A central issue in the EU’s investigation is X’s transformation of the blue checkmark from a symbol of verified identity to a paid subscription feature. This change, which began in late 2022, has been criticized for misleading users about account credibility.

The European Commission’s preliminary findings in 2024 confirmed that this redesign violated the DSA’s rules on deceptive design. Despite X’s contestation, the platform recently added disclaimers to clarify the meaning of blue checks in an attempt to mitigate regulatory risks and potential fines.

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Market and regulatory outlook amid ongoing investigations

The EU could announce fines or other sanctions before its summer recess in August 2025, although delays are possible. The investigation underscores the EU’s commitment to enforcing digital regulations on major platforms, especially those with significant user bases and market influence like X. For Musk and xAI, the outcome will shape their operational strategy in Europe and potentially influence broader regulatory approaches to AI-integrated social media platforms worldwide.

Strategic outlook for regulatory compliance and corporate governance

The EU’s intensified scrutiny of Musk’s xAI acquisition of X highlights the evolving regulatory landscape for tech conglomerates blending AI and social media. Effective corporate governance, transparent user policies, and proactive engagement with regulators will be critical for Musk’s entities to navigate compliance challenges.

This case sets a precedent for how future AI-driven platforms may be regulated, emphasizing accountability and user protection as digital ecosystems grow increasingly complex.