The U.S. Securities and Exchange Commission is investigating the recent near-collapse of AI-focused hedge fund Situational Awareness, according to The New York Times. The regulator has issued subpoenas to major Wall Street banks that traded with the fund or provided leverage, seeking details on the timing of trades, communications tied to borrowed money, and preservation of records related to the fund. Situational Awareness was founded by former OpenAI researcher Leopold Aschenbrenner and had posted strong returns during the AI boom. At its peak, the fund managed more than $30 billion in assets and borrowed tens of billions of dollars to amplify its bets. The Times reported that losses widened late last month as shares of popular AI companies fell while traditional technology stocks the fund had shorted moved higher. The fund was then forced into a fire-sale style liquidation, selling most of its equity portfolio to Citadel at a discount. The SEC said the inquiry is still in its early stages and does not mean enforcement action will necessarily follow. Situational Awareness has not been accused of wrongdoing and said it would fully cooperate with any regulatory requirements.
According to The New York Times, the U.S. Securities and Exchange Commission is investigating the recent near-collapse of AI hedge fund Situational Awareness and has sent subpoenas to major Wall Street banks that traded with the fund or extended leverage to it.
Regulator seeks trade timeline and borrowing-related communications
People familiar with the matter said the SEC has asked banks to provide information on the timing of the fund’s trades, along with communications involving lenders about borrowed funds. The agency also asked that all materials related to the fund be preserved.
Fund grew during the AI boom
Situational Awareness was founded by former OpenAI researcher Leopold Aschenbrenner and had generated outsized returns during the AI rally. At its peak, the fund managed more than $30 billion in assets and borrowed tens of billions of dollars to increase the size of its positions.
Losses accelerated late last month
The report said losses mounted quickly late last month as shares of high-profile AI companies declined while traditional technology stocks that the fund had shorted rose. The fund was ultimately forced into a fire-sale liquidation and sold most of its stock portfolio to Citadel at a discount.
SEC says the inquiry is at an early stage
The SEC said the investigation remains in its early stage and does not necessarily mean penalties will follow. Situational Awareness has not been accused of any violations. The fund said it would “fully cooperate with any regulatory requirements.”
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