SEC Subpoenas Four Wall Street Banks After Situational Awareness Loses 67% of Its Portfolio

The Securities and Exchange Commission has subpoenaed 4 major Wall Street banks over their dealings with Situational Awareness, an AI-focused hedge fund that lost roughly 67% of its portfolio value in July. The early-stage inquiry centers on the timing of the fund’s trades and its communications with lenders about borrowed money, or leverage. The subpoenas were sent to Bank of America, Citi, Goldman Sachs, and JPMorgan Chase, according to people briefed on the outreach cited by The New York Times and reported elsewhere.

The SEC’s requests focus on trading records, lender communications, and the financing behind the fund’s positions. The investigation examines activity surrounding the fund’s near-collapse, while Situational Awareness itself has not been accused of wrongdoing. Reuters reported that the regulator is investigating trades that produced steep losses and the fund’s discussions with lenders about leverage.

Situational Awareness moved from one of Wall Street’s most closely watched AI investment stories to a forced liquidation within weeks. The fund had built a large portfolio of public-equity positions tied to the artificial-intelligence boom, then came under pressure at the end of July as those holdings fell and financing demands intensified.

The scale of the reversal was severe. CNBC reported that the fund had been associated with a valuation of about $45 billion before losing most of its value in days, while other accounts described the vehicle as a roughly $30 billion AI fund. It was ultimately forced to sell much of its public-equity portfolio to Citadel, according to Reuters. That sale turned a market setback into a broader financing event involving the fund, its lenders, and counterparties.

Leverage sits at the center of the SEC’s questions because borrowed capital can magnify both gains and losses. Regulators are seeking information about when Situational Awareness placed trades, how those positions were financed, and what the fund told banks as its portfolio deteriorated.

The investigation therefore reaches beyond the fund’s investment decisions. Bank communications can show how lenders assessed collateral, margin pressure, and repayment risk as prices moved. The New York Times described the outreach as involving trade timing data and communications with lenders, while Reuters reported a parallel focus on the fund’s use of leverage. The banks’ involvement reflects their roles as financing providers and trading counterparties, not an accusation that they broke securities laws.

The fund’s collapse drew unusual scrutiny because its manager, Leopold Aschenbrenner, had already gained prominence as a former OpenAI researcher and as the author of a widely read 165-page essay about artificial intelligence. That profile helped Situational Awareness become a symbol of concentrated conviction around AI’s economic future.

TechCrunch described the fund as a brief Wall Street obsession, while CNBC traced Aschenbrenner’s rise from OpenAI researcher to hedge-fund manager. The fund’s strategy placed substantial weight on AI-related investments during a period when enthusiasm for the sector was driving huge valuations. Its reversal now offers a financial warning about the distance between confidence in AI’s long-term trajectory and the liquidity demands of leveraged public-market positions.

The SEC’s subpoenas can help establish a timeline for the July selloff and determine how the fund, banks, and other counterparties responded as losses mounted. Key issues include whether trading activity complied with applicable rules, whether lender disclosures matched the fund’s financial condition, and how quickly financing arrangements changed during the crisis.

The inquiry remains at an early stage, and subpoenas alone don't establish misconduct. The Wall Street Journal’s account of how banks recognized that Situational Awareness was under strain adds context to the regulator’s interest in lender knowledge and response. The eventual findings could affect how prime brokers evaluate concentrated AI exposure, how funds disclose leverage, and how investors judge strategies built around a single technology theme.

Situational Awareness’s near-collapse puts the financing of AI optimism under a microscope. Banks that extend credit against fast-moving technology stocks face pressure to monitor concentration, collateral values, and communications in real time. Hedge funds, meanwhile, face renewed attention on how aggressively they borrow to express a long-term thesis through volatile public equities.

The episode also separates 2 parts of the AI investment story: demand for the technology and the risks of packaging that demand into highly leveraged trades. Citadel’s purchase of much of the portfolio provided an exit route, but the SEC inquiry will determine whether the chain of trades and financing raised regulatory concerns. The banks have been subpoenaed for information, and the investigation’s outcome remains ahead.