SEC Probes Banks Over Situational Awareness Hedge Fund Collapse

The U.S. Securities and Exchange Commission has subpoenaed Bank of America, Citigroup, Goldman Sachs and JPMorgan Chase as regulators investigate the dramatic losses suffered by AI-focused hedge fund Situational Awareness, according to the New York Times.

The early-stage SEC investigation is seeking information about the timing of the hedge fund’s trades and its communications with lenders regarding leverage. Regulators also instructed the banks to preserve records connected to the San Francisco-based investment firm. Neither the SEC nor the four banks commented on the inquiry.

Founded in 2024 by former OpenAI researcher Leopold Aschenbrenner, Situational Awareness rapidly expanded to manage more than $30 billion while borrowing tens of billions of dollars to increase exposure to AI-related semiconductor stocks. The fund reportedly generated returns exceeding 1,000% from its launch through June 2026 before suffering a severe reversal in July.

At the end of June, Situational Awareness held approximately $5.7 billion of SanDisk shares and $5.6 billion of Micron stock, together accounting for more than 56% of its U.S. equity portfolio. SanDisk plunged nearly 47% in July, while Micron dropped about 29%, contributing to margin calls and forcing the fund to liquidate its public stock holdings.

Citadel reportedly acquired the portfolio at roughly a 10% discount. CEO Ken Griffin later told clients that Citadel had unwound more than 80% of the acquired risk through over 100 block trades valued at more than $4 billion within three weeks. Citadel’s Wellington fund returned 5.94% in July, its strongest monthly performance since 2022.

Situational Awareness said regulatory scrutiny was expected given its high profile, exceptional earlier returns and dramatic losses, adding that it would fully cooperate with regulators.

The SEC investigation remains preliminary, and Situational Awareness has not been accused of wrongdoing. Regulators have not disclosed whether they are examining market manipulation, disclosure issues, lender conduct or other potential concerns.

Despite selling its public equity portfolio, Situational Awareness retained its private investment in AI company Anthropic, which is reportedly targeting an IPO valuation of up to $2 trillion.