A $30 Billion AI Fund Implodes, Now the SEC Is Investigating Wall Street’s Role

The Securities and Exchange Commission (SEC) has despatched subpoenas to main Wall Street banks over their dealings with Situational Awareness, the synthetic intelligence (AI) hedge fund that almost collapsed final month.

Three individuals briefed on the outreach described the requests to the New York Times. Regulators need commerce timing information and lender communications. The fund has not been accused of wrongdoing.

SEC Investigation Targets the Leverage Paper Trail

The subpoenas went to banks that cleared the fund’s trades and financed its positions. Bank of America, Citi, Goldman Sachs, and JPMorgan Chase ranked amongst its largest counterparties, in keeping with a regulatory submitting.

Investigators requested for the timing of particular trades. They additionally requested messages the banks exchanged with the fund about borrowed cash, and informed them to protect each report tied to the San Francisco agency.

All 4 banks declined to remark. So did the SEC. A Situational Awareness spokesman stated scrutiny of this type was predictable.

“It is to be anticipated that regulators would intently study any funds which are high profile, produce vital returns or have notably dramatic drawdowns,” Situational Awareness said in a press release.

The timing lands as financial institution executives flag hidden borrowing throughout markets. JPMorgan chief Jamie Dimon warned this month that margin debt hit records.

A $30 Billion Book That Unwound in Days

At its peak the fund ran greater than $30 billion and borrowed tens of billions extra. Leopold Aschenbrenner, a 24-year-old former OpenAI researcher, based it roughly two years in the past.

Filings present the technique turned much more aggressive earlier than it broke. Protective put choices value $8.5 billion in March had largely disappeared by June 30, changed by $12.5 billion in outright lengthy positions.

AI names then dipped in late July whereas the conventional tech shares the fund had shorted climbed. Margin calls adopted, the portfolio fell about 67%, and Citadel purchased the public ebook at a roughly 10% discount.

Bitcoin Miners Were Caught in the Middle

Crypto buyers absorbed a part of that unwind with out understanding it. Mining shares had grown to a quarter of the book, reaching $1.99 billion in the closing 13F submitting.

Core Scientific, Riot Platforms, and IREN led these positions. Ken Griffin’s agency has since cleared the miner overhang by almost 100 block trades.

Any SEC investigation at this stage might by no means produce a case. The paperwork it gathers, nevertheless, might present how lengthy the banks funded one concentrated AI wager earlier than withdrawing credit score.

Situational Awareness nonetheless holds a stake in Anthropic, which is weighing a public itemizing. That place now stands as the clearest measure of what survived July.

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