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SEC Probes Major Banks Over AI Hedge Fund Situational Awareness Meltdown
Finance · Investment Banks/Brokers · cnbc · 2026-08-25
SKHY, C, GS, JPM, BAC, SKHY, CRWV
Regulators are investigating Goldman Sachs, JPMorgan, and other lenders regarding their involvement with Leopold Aschenbrenner's highly leveraged AI fund.
What Happened
Regulatory Investigation: The Securities and Exchange Commission has issued subpoenas to major Wall Street firms, including Goldman Sachs, JPMorgan, Citigroup, and Bank of America. Regulators are scrutinizing the banks' interactions with Situational Awareness, an AI-focused hedge fund that experienced a dramatic decline in assets during the recent tech market volatility.
Leverage and Market Impact: Led by former OpenAI researcher Leopold Aschenbrenner, the fund utilized extreme leverage of up to 400% to build concentrated positions in companies like SK Hynix and CoreWeave. When the market corrected in late July, the fund's assets plummeted from $45 billion to $10 billion, triggering widespread margin calls and forced liquidations.
Citadel's Intervention: Ken Griffin’s Citadel stepped in to acquire the distressed positions at a reported 10% discount, effectively stabilizing the situation. Citadel has since successfully offloaded approximately 80% of the risk associated with these assets, contributing to a subsequent recovery in the share prices of the affected tech holdings.
Broader Industry Implications: While the SEC inquiry does not imply wrongdoing by the banks or the fund, the event has highlighted systemic risks associated with high-leverage strategies in the AI sector. Situational Awareness has pledged full cooperation with the investigation, noting that regulatory scrutiny is a standard outcome for high-profile funds experiencing significant drawdowns.