SEC Subpoenas Four Banks Over Leveraged AI Fund Collapse

Situational Awareness, a hedge fund built around artificial-intelligence trades, used financing from major prime brokers to run leverage of as much as 400%. Its strategy paired long positions in AI chipmakers with shorts in software stocks, leaving it exposed when both sides moved against the fund. The resulting losses and liquidity squeeze have raised questions about how banks monitored concentrated positions, extended credit and managed margin risk.

The US Securities and Exchange Commission has opened an investigation and subpoenaed Goldman Sachs, JPMorgan Chase, Citigroup and Bank of America. The agency is seeking communications about the fund’s use of leverage, a timeline of margin calls and records explaining liquidation decisions. Regulators are examining how the fund obtained financing equal to 400% of its capital before it was forced to sell its publicly traded equity portfolio at discounted prices.