A jury just hit Musk with $2.6B — and 9 of 11 xAI co-founders have quit

Elon Musk is having the worst week of his AI career. On Friday, a federal jury in San Francisco found him liable for misleading Twitter investors — with damages that could reach $2.6 billion. That same month, he admitted his AI company xAI "was not built right" and announced a full rebuild. And behind the scenes, 9 of his 11 original xAI co-founders have walked out the door.

The man behind Grok, the world's most controversial chatbot, is now scrambling to hold together a $1.25 trillion empire that merges rockets, social media, and artificial intelligence — all while preparing for a July IPO.

The $2.6 billion verdict

A nine-person jury deliberated for four days before delivering a unanimous verdict: Musk's tweets on May 13 and May 17, 2022 were "materially false or misleading." In those posts, he claimed his $44 billion Twitter deal was "temporarily on hold" while he investigated fake accounts — a move investors say was designed to tank the stock price so he could renegotiate.

The plaintiffs' attorney put it bluntly: "Just because you're a rich and powerful person, you still have to obey the law, and no man is above the law."

The jury calculated shareholders should receive $3 to $8 per share per day of damage, totaling an estimated $2.1–2.6 billion. For context, Musk's current net worth sits around $814 billion — so this is roughly pocket change for him. His lawyers called the verdict "a bump in the road" and plan to appeal.

9 of 11 co-founders gone

The legal trouble is just one crack in the foundation. Inside xAI, a mass exodus has hollowed out the leadership team. Of the 11 co-founders who launched xAI alongside Musk in 2023, only two remain.

The most recent departures — co-founders Zihang Dai and Guodong Zhang — left in the second week of March 2026. Before them, Toby Pohlen, who was tapped to lead xAI's most ambitious project (codenamed "Macrohard"), quit just weeks after taking the role. Approximately a dozen senior engineers also walked out.

Why are they leaving? Two reasons keep surfacing: burnout from Musk's famously "extremely hardcore" work demands, and better offers from competitors. Anthropic (the company behind Claude) and OpenAI are actively recruiting xAI talent with stronger compensation packages.

'Not built right the first time'

In a remarkably candid post on X, Musk wrote: "xAI was not built right first time around, so is being rebuilt from the foundations up." He compared the situation to early Tesla struggles.

The specifics are damning:

To stop the bleeding, xAI poached Andrew Milich and Jason Ginsberg from Cursor, the AI coding startup currently valued at around $50 billion. Their job: fix Grok's coding capabilities from the ground up.

Teens are suing over Grok deepfakes

Adding to the crisis, three Tennessee high school students filed a class-action lawsuit against xAI this week. Someone used Grok's image generation tool to create sexually explicit deepfake images of them using their homecoming photos and yearbook pictures. The perpetrator created explicit images of at least 18 girls before police arrested him.

The lawsuit argues that xAI deliberately marketed Grok's ability to generate "spicy" content — unlike competitors who block all explicit image generation. The plaintiffs are seeking class-action status to represent thousands of similar victims.

What's at stake: a $1.25 trillion IPO

All of this is happening as Musk prepares for what could be the biggest IPO in history. SpaceX plans to go public in July 2026, and because of the merger, investors would effectively be buying into three companies at once: SpaceX (rockets), X (social media), and xAI (artificial intelligence).

The combined entity is valued at $1.25 trillion — with xAI alone pegged at $250 billion. But with 9 of 11 co-founders gone, a fraud verdict, a paused flagship project, and a chatbot that can't keep up with Claude or GPT, that valuation is looking increasingly shaky.

Musk's vision — relocating AI data centers to orbit to leverage unlimited solar power — remains audacious. But right now, his AI company can't even keep its own founders in the building.

The bottom line

If you use Grok on X, don't expect it to disappear — Musk has too much riding on it. But the AI behind it is being rebuilt from scratch, its leadership has evaporated, and courts are now weighing in on Musk's business conduct. For the broader AI industry, this is a cautionary tale: money and ambition alone don't build great AI. Talent does — and talent is walking.

Related Content — Get Started with Easy Claude Code | Free Learning Guides | More AI News