SEC subpoenas banks over Situational Awareness blow-up

Key Points:

• The SEC has subpoenaed major Wall Street banks, including Goldman Sachs, JP Morgan, Citigroup, and Bank of America, to investigate their involvement with AI-focused hedge fund Situational Awareness, which nearly collapsed after a significant downturn.
• Situational Awareness, led by former OpenAI researcher Leopold Aschenbrenner, saw its assets plunge from $45 billion to $10 billion following a tech sell-off and was forced to unwind heavily leveraged positions in companies like SK Hynix and CoreWeave.
• Citadel acquired these distressed positions at a discount and has since reduced its exposure by about 80%, with the affected stocks subsequently rallying.
• The SEC’s inquiry focuses on the hedge fund’s trades, leverage use (reportedly up to 400%), and communications with banks, but no wrongdoing has been alleged, and regulatory probes can end without enforcement.
• Situational Awareness has expressed full cooperation with regulators, emphasizing its status as a highly regulated entity, while the subpoenas highlight the broader role of leverage in the AI investment boom.