US defense official overseeing AI reaped millions selling xAI stock after Pentagon entered agreement with company
Emil Michael, the Pentagon’s under‑secretary for research and engineering, sold a stake in Elon Musk’s xAI for up to $24 million, while the department entered agreements with the firm. The move sparked ethics questions and a defense statement of compliance.
Emil Michael, the Pentagon’s under‑secretary for research and engineering, sold a private investment in Elon Musk’s AI company xAI for as much as $24 million, according to government ethics filings released this month. The sale occurred while the Department of Defense (DoD) was negotiating and later signing contracts with xAI, prompting questions about potential conflicts of interest and the application of federal ethics rules.
Who Is Emil Michael?
Michael was appointed to his role in May 2024 by President Donald Trump. He has a background in the private sector, having served as chief business officer at Uber, and has long been a proponent of integrating artificial intelligence into military operations. In his current position, he leads the Pentagon’s AI acquisition strategy and has been a vocal advocate for rapid deployment of AI technologies across the armed forces.
How the xAI Deal Unfolded
Michael first disclosed a stake in xAI in March 2025, valuing his holdings between $500,000 and $1 million. The company, founded by Musk in 2023, is not publicly traded and has raised billions from investors such as the Qatar Investment Authority. On 9 January 2025, Michael sold the shares through his investment vehicle, KQ Partners, for a reported amount ranging from $5 million to $25 million. The sale represents a gain of 400% to 4,800% over the original value.
During the period he owned the shares, the Pentagon entered two agreements with xAI. In July 2025, the DoD selected xAI’s Grok chatbot as one of four commercial AI providers to support military operations. On 18 December, the Office of Government Ethics (OGE) issued a divestiture certificate requiring Michael to dispose of his xAI holdings to comply with conflict‑of‑interest laws. Four days later, the Department of War (the DoD’s new name) announced a formal partnership with xAI, citing the deployment of the company’s capabilities on GenAI.mil.
Ethics Concerns and Legal Framework
Federal law prohibits officials from taking actions that benefit their personal financial interests. Former White House ethics lawyer Richard Painter noted that allowing a defense official to retain AI stock while overseeing AI procurement would likely violate criminal statutes. The Pentagon’s spokesperson, Sean Parnell, defended the department’s compliance, stating that a “rigorous, multi‑layered ethics framework” was in place and that Michael was in full compliance with all regulations.
Despite the official statement, the timing of the sale—just days after the DoD’s new agreement with xAI—raised eyebrows. Critics argue that the sale could have been influenced by knowledge of the impending contract, thereby creating a conflict of interest that the ethics framework was meant to prevent.
Broader Implications for AI in the Military
Michael’s actions come at a time when the U.S. military is intensifying its AI initiatives. Secretary of Defense Pete Hegseth has been a vocal proponent of AI integration, and the Pentagon’s internal communications have highlighted a push for “AI” across all branches. The controversy also intersects with ongoing disputes involving other AI contractors, such as Anthropic, whose technology has faced scrutiny over domestic surveillance and autonomous weaponry.
In addition to the ethical debate, the incident underscores the challenges of regulating AI investments for high‑ranking officials. Because xAI is a private, non‑publicly traded entity, the exact mechanisms of Michael’s investment and sale remain opaque, complicating efforts to assess whether proper disclosure and divestiture procedures were followed.
What Happens Next?
The Department of Defense has not issued a detailed response beyond the statement from Parnell. Ongoing investigations by the Office of Government Ethics may examine the timing and nature of Michael’s sale. Meanwhile, the DoD’s new partnership with xAI continues, with plans to deploy the company’s AI tools across the military’s 3 million personnel. The situation remains unresolved, with observers monitoring for potential policy changes or further scrutiny of AI procurement practices.
Why it matters
The sale highlights the tension between private AI investments and public procurement, raising questions about how the military manages conflicts of interest as it expands its AI capabilities.
Key points
- Emil Michael sold xAI shares for up to $24 million while the Pentagon signed deals with the company
- Federal law bars officials from actions that benefit their financial interests
- The Office of Government Ethics required Michael to divest his holdings
- The DoD’s new partnership with xAI continues amid controversy
- The incident underscores challenges in regulating AI investments for defense officials
Frequently asked questions
What is the Office of Government Ethics' role in this case?
The OGE oversees the disclosure and divestiture of officials’ financial interests to prevent conflicts of interest.
Why is the sale of xAI shares controversial?
Because the sale occurred while the Pentagon was negotiating contracts with xAI, raising concerns that the official may have benefited from inside knowledge.
