Global Regulators Target Elon Musk's Grok AI Over Child Exploitation and Deepfake Concerns

Jan 9, 2026, 8:02 a.m. 3 sources neutral

Key takeaways:

  • Regulatory crackdowns on Grok's 'Spicy Mode' could pressure X's valuation and its crypto integration plans.
  • Increased AI content regulation may dampen investor sentiment toward platforms blending social media and crypto.
  • The controversy highlights systemic risks for crypto projects reliant on platforms facing existential legal threats.

Australia's eSafety Commissioner, Julie Inman Grant, issued a stark warning on Thursday about the escalating use of Elon Musk's Grok AI chatbot to generate non-consensual sexualized imagery. Grant revealed that complaints to her office about the AI tool have doubled since late 2025, with some reports involving potential child sexual exploitation material (CSEM) and others concerning image-based abuse of adults.

"I'm deeply concerned about the increasing use of generative AI to sexualise or exploit people, particularly where children are involved," Grant stated on LinkedIn. She emphasized that AI's ability to create "hyper-realistic content" is empowering bad actors and complicating the response efforts of regulators and law enforcement.

The regulatory scrutiny is intensifying internationally. In the UK, Prime Minister Kier Starmer has directed the communications regulator, Ofcom, to consider all options against X (formerly Twitter), the platform hosting Grok. This includes potential fines totaling billions or even blocking access to the X app in Britain altogether. The action follows a report from the Internet Watch Foundation (IWF) charity, whose analysts discovered AI-generated images of young girls, allegedly created by Grok, on a dark web site.

"X has got to get a grip of this, and Ofcom has our full support to take action in relation to this. This is wrong. It's unlawful. We're not going to tolerate it," Prime Minister Starmer declared.

The controversy is partly fueled by xAI's positioning of Grok as an "edgy" alternative to more restrictive models like ChatGPT. The company specifically launched a "Spicy Mode" in August 2025 to generate explicit content. This approach has already drawn legal action in the European Union, which declared the feature illegal.

Australian authorities are leveraging existing powers, noting that enforceable industry codes require online services to implement safeguards against CSEM. Last year, eSafety forced the withdrawal of "nudify" services from Australia. Grant warned that companies must now build appropriate safeguards into generative AI products "across every stage of the product lifecycle." In a landmark case in September 2025, Australia secured its first deepfake penalty, fining a man over $212,000 for posting deepfake pornography.

Legislators are pushing for stronger laws. Independent Australian Senator David Pocock introduced a bill in November 2025 that would impose upfront fines of up to $102,000 on individuals and $510,000 on companies for sharing non-consensual deepfakes.

Elon Musk has previously criticized the UK's Online Safety Act, claiming its intent is "the suppression of the people" and that it risks infringing on free speech. X maintains that it takes action against illegal content, including permanently suspending accounts and cooperating with law enforcement, and warns that users prompting Grok to create illegal material will face consequences.

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