SEC Subpoenas Wall Street Banks in Probe of AI Hedge Fund Situational Awareness
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The SEC has subpoenaed Goldman Sachs, JPMorgan, Citi, and Bank of America for records tied to AI hedge fund Situational Awareness — the fund shrank from $45 billion to roughly $10 billion during July's tech sell-off, pushing systemic risks of high-leverage AI bets squarely onto the regulatory radar.
What exactly is the SEC investigating?
Subpoenas went to Goldman Sachs, JPMorgan, Citi, and Bank of America, demanding records on trades, leverage, and communications with Situational Awareness.
This means → the SEC is not just looking at the fund itself — it wants to know whether these banks, acting as prime brokers (the middlemen who lend money and provide trading access to hedge funds), failed to manage leverage properly.
Important context: a subpoena is not a charge of wrongdoing — these probes can close with no enforcement action at all.
Why did this fund blow up?
Situational Awareness was founded by former OpenAI researcher Leopold Aschenbrenner. It held concentrated positions in AI-linked stocks like SK Hynix and CoreWeave, reportedly at leverage of up to 400%.
In plain terms = for every $1 of its own capital, the fund borrowed $3 to bet on AI stocks — all in the same direction.
When tech stocks sold off in late July, assets under management plunged from roughly $45 billion to about $10 billion. Multiple prime brokers issued margin calls, forcing massive liquidation.
Who picked up the wreckage?
Citadel stepped in and bought Situational Awareness's positions at roughly a 10% discount.
Founder Ken Griffin told investors Citadel has already unwound about 80% of the risk exposure it acquired.
SK Hynix and CoreWeave shares have since recovered — this reflects the market's view that the most violent forced selling is over.
How have the parties responded?
Goldman Sachs declined to comment on the subpoena. JPMorgan, Citi, and Bank of America had not responded by the time of reporting.
Situational Awareness said in a statement: "Regulatory scrutiny of high-profile, high-return, or sharply drawdown funds is to be expected. We will fully cooperate with any regulatory requests."
This means → the fund is framing this as routine oversight, aiming to cool fears that it faces a formal enforcement case.
What does this mean for the broader market?
This is the first time systemic risk from high-leverage AI-themed investment strategies has been placed formally under the regulatory spotlight.
The core question going forward: how far prime brokers' risk-management obligations extend in extreme market conditions — how much leverage they extended and whether they tightened it in time.
In plain terms = regulators want to determine whether this blowup was purely the fund's own oversized bet, or whether the banks' risk controls also had gaps.
Content is for reference only, not financial advice.