The Securities and Exchange Commission has issued subpoenas to major Wall Street banks that financed and traded alongside Situational Awareness, the AI-focused hedge fund whose assets collapsed by roughly three-quarters in a matter of weeks this summer, according to reporting from TechCrunch confirmed by CNBC.
Situational Awareness, founded by former OpenAI researcher Leopold Aschenbrenner, became one of Wall Street's most closely watched funds this year on the strength of concentrated bets tied to the AI trade. Assets under management reportedly swelled to around $45 billion before a sharp downturn in AI-related stocks in late July wiped out a large share of that value, dragging the fund down to roughly $10 billion. The losses triggered margin calls from prime brokers, forcing the fund to unwind much of its publicly listed portfolio in a short window — the kind of disorderly deleveraging that regulators tend to scrutinize closely after the fact.
The subpoenas reportedly went to banks that supervised the fund's trading and channeled financing to it, with regulators asking for records of trades, leverage levels and communications with lenders. The SEC has also told the banks to preserve related records, a standard step when an investigation is in its early stages.
No allegations of wrongdoing, for now
Neither the SEC nor the reporting on the probe has alleged wrongdoing by Situational Awareness or the banks involved. A spokesperson for the fund said it would "cooperate to the fullest extent with any regulatory request," language typical of firms facing early-stage regulatory inquiries rather than enforcement actions. It remains unclear whether the SEC's interest is focused on the fund's own conduct, the banks' risk controls in extending leverage to a concentrated AI bet, or the broader mechanics of how the near-collapse unfolded.
The episode has become something of a cautionary tale on Wall Street about the risks embedded in funds that built large, leveraged, thematically concentrated positions around the AI trade during its run-up. Situational Awareness's rapid rise and near-implosion — its assets falling by roughly $35 billion in a matter of weeks — has drawn comparisons to past episodes of concentrated, leverage-fueled funds unwinding suddenly once a popular trade reverses.
An SEC probe of the banks that facilitated the fund's trading, rather than the fund alone, suggests regulators are also interested in how much exposure the broader financial system had to a single AI-focused fund's fortunes — a question with implications well beyond Situational Awareness itself as more institutional money has flowed into AI-themed strategies over the past two years.
