The U.S. Securities and Exchange Commission (SEC) has issued subpoenas to major Wall Street financial institutions regarding their business dealings with Situational Awareness, an artificial intelligence hedge fund that nearly collapsed last month. According to sources briefed on the matter, the regulatory requests target trade timing data and communications between lenders and the fund. Neither the SEC nor the fund has accused any party of wrongdoing.
Leverage and Bank Involvement
The regulatory subpoenas were directed at institutions that cleared trades and financed positions for the fund. Regulatory filings indicate that Bank of America, Citi, Goldman Sachs, and JPMorgan Chase were among the San Francisco-based firm's largest counterparties. Investigators are seeking specific trade timings, records of messages regarding borrowed money, and instructions to preserve all documentation tied to the firm.
Representatives for Bank of America, Citi, Goldman Sachs, JPMorgan Chase, and the SEC all declined to comment. However, a spokesperson for Situational Awareness stated that regulatory scrutiny of this nature was anticipated. The investigation coincides with broader concerns from banking executives regarding hidden leverage across markets, with JPMorgan Chief Executive Jamie Dimon noting this month that margin debt has reached record levels.
Rapid Unwind and Market Impact
At its peak, Situational Awareness managed a book exceeding $30 billion while borrowing tens of billions more. Founded roughly two years ago by 24-year-old former OpenAI researcher Leopold Aschenbrenner, the fund's strategy shifted significantly prior to its downfall. Filings indicate that $8.5 billion in protective put options held in March were largely replaced by $12.5 billion in outright long positions by June 30.
When artificial intelligence stocks dipped in late July while traditional shorted tech stocks rose, the fund faced heavy margin calls. Its portfolio dropped by approximately 67%, leading Citadel to acquire the public book at roughly a 10-percent discount. Crypto markets were also impacted, as mining stocks made up a quarter of the fund's book, totaling $1.99 billion in the final 13F filing. Key positions included Core Scientific, Riot Platforms, and IREN, with Ken Griffin's firm subsequently clearing the miner overhang through nearly 100 block trades.
While the current SEC investigation may not result in formal enforcement action, the gathered documents could reveal how long banks continued to finance the concentrated AI bet before pulling back credit. Meanwhile, Situational Awareness retains a stake in Anthropic, which is currently considering a public listing.
