Reports: SEC subpoenas banks over Situational Awareness blow-up

The Securities and Exchange Commission has reportedly subpoenaed several major Wall Street lenders to glean more information about their role in the near-collapse of AI-focused hedge fund Situational Awareness.

Regulators are seeking insights into Situational Awareness’s trades, use of leverage and communications with the investment banks, which include Goldman Sachs, JP Morgan, Citigroup and Bank of America, according to Reuters, citing a source familiar with the matter.

Situational Awareness plunged from about $45 billion to around $10 billion in late July after it was hammered in last month’s tech sell-off.

The hedge fund, led by former OpenAI researcher Leopold Aschenbrenner, was forced to unwind much of its publicly listed portfolio of large, concentrated, levered positions — which included SK Hynix and CoreWeave — after losses sparked several margin calls among its prime brokers.

Citadel, Ken Griffin’s giant multi-strategy hedge fund, stepped in to buy the positions at a discount, understood to be around 10%. Griffin said in an investor letter Friday that Citadel has since offloaded about 80% of the risk associated with the Situational Awareness portfolio. SK Hynix and CoreWeave have since rallied.

Goldman Sachs declined to comment on the matter. CNBC has also contacted JPMorgan, Citigroup and Bank of America for comment.

The debacle has cast light on the various ways in which leverage is increasingly underpinning the wider AI boom.

The information request does not mean the banks, or Situational Awareness — which was driven by reported leverage of up to 400% — have been accused of any wrongdoing by the SEC. Such regulatory inquiries can conclude without any 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.