SEC subpoenas banks over AI hedge fund Situational Awareness near-collapse
The SEC is probing banks' role in the $45B AI hedge fund's meltdown after margin calls forced a fire sale. Citadel bought the positions at a 10% discount.
The Securities and Exchange Commission has subpoenaed several Wall Street lenders for information about their role in the near-collapse of AI-focused hedge fund Situational Awareness, according to a source familiar with the matter.
Regulators are seeking details on the fund's trades, its use of leverage and its communications with Goldman Sachs, JPMorgan, Citigroup and Bank of America, Reuters reported.
Situational Awareness plunged from about $45 billion to roughly $10 billion in late July after it was hammered during last month's tech sell-off. The fund, led by former OpenAI researcher Leopold Aschenbrenner, was forced to unwind much of its publicly listed portfolio of large, concentrated positions – including SK Hynix and CoreWeave – after losses triggered margin calls at its prime brokers.
Citadel, Ken Griffin's giant multi-strategy firm, stepped in to buy the positions at a discount of around 10%, according to an investor letter Friday. Griffin said in the letter that Citadel has since offloaded about 80% of the risk tied to the Situational Awareness portfolio. SK Hynix and CoreWeave have since rallied.
Goldman Sachs declined to comment. CNBC has also contacted JPMorgan, Citigroup and Bank of America for comment.
The fund had been running leverage of up to 400%, the source said.
The SEC's information request does not mean the banks or Situational Awareness have been accused of wrongdoing, Reuters reported. Such inquiries can end without enforcement action.
"It is to be expected that regulators would closely examine any funds that are high profile, produce significant returns, or have particularly dramatic drawdowns," Situational Awareness said in a statement. "We are a highly-regulated business and will cooperate to the fullest extent with any regulatory request."
The New York Times first reported the subpoenas.
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