SEC Subpoenas Four Wall Street Banks Over the Situational Awareness Collapse

The regulatory reckoning for the AI trade’s most spectacular blowup has begun. On August 24, the New York Times reported that the US Securities and Exchange Commission has subpoenaed Bank of America, Citigroup, Goldman Sachs and JPMorgan Chase as part of an early-stage investigation into the near-collapse of Situational Awareness, the San Francisco-based AI hedge fund founded by former OpenAI researcher Leopold Aschenbrenner. Reuters and the Financial Times subsequently confirmed the outreach, which cited three people briefed on the matter.

The subpoenas seek details on two things above all: the timing of Situational Awareness’s trades, and the fund’s communications with its lenders about borrowed money — the leverage that turned a concentrated bet on AI memory chips into one of the fastest destructions of hedge fund capital in recent memory. Regulators also instructed the banks to preserve any information related to the fund. Spokespeople for all four banks declined to comment, as did the SEC.

A 1,000% run, then a 67% month

To understand why regulators are asking questions, it helps to recap just how dramatic the rise and fall was. Founded in 2024, Situational Awareness grew to manage more than $30 billion while borrowing tens of billions more to amplify concentrated bets on AI-linked chip stocks. At its peak, the fund was said to be overseeing as much as $45 billion in assets including leveraged positions. Returns exceeded 1,000% from launch through June 2026, making it one of the most talked-about funds on Wall Street — and turning its founder, still in his mid-twenties, into the public face of the “AI supremacists” trade.

Then July arrived. At the end of June, the fund held a $5.7 billion stake in SanDisk and a $5.6 billion position in Micron — together more than 56% of its US portfolio, per the New York Post. When SanDisk fell nearly 47% and Micron dropped roughly 29% that month, the math turned lethal: margin calls forced a fire sale of the fund’s entire public equity book to rival Citadel at a roughly 10% discount, as the Financial Times reported. The fund posted a 67% loss for the month, and its asset base collapsed from roughly $45 billion to around $10 billion.

The forced unwind of the multi-billion-dollar Micron stake was among the largest single-name liquidations of the episode, which is one reason the SEC’s questions about trade timing matter well beyond one fund’s investor base — any finding would be directly relevant to Micron’s shareholders, who absorbed the selling pressure.

What the subpoenas are actually probing

It is important to state what this investigation is not: no one has been accused of wrongdoing, and early-stage SEC inquiries frequently end without charges. But the subpoena language points to the core mechanics of the blowup. Investigators reportedly want to know when the fund traded, what it told the prime brokers who financed those positions, and whether the picture banks were shown matched reality as losses mounted.

The SEC has a well-established practice of scrutinizing investment firms involved in large, sudden losses. What remains unknown is the specific theory of the case — whether regulators are examining potential market manipulation, disclosure failures, prime-broker conduct, or simply documenting the anatomy of the unwind for a future rulemaking record. The banks, as lenders and clearing counterparties rather than the fund itself, are the natural first stop for reconstructing that timeline.

Situational Awareness struck a notably cooperative tone in a statement to the Times: “It is to be expected that regulators would closely examine any funds that are high profile, produce significant returns or have particularly dramatic drawdowns. We are a highly regulated business and will cooperate to the fullest extent with any regulatory request.”

Citadel’s cleanup, already 80% done

The other protagonist in this story has been Ken Griffin’s Citadel, which stepped in as buyer of last resort for the fund’s public portfolio. In a client letter dated August 21, Griffin said Citadel had already unwound more than 80% of the aggregate risk it acquired, executing more than 100 block trades worth over $4 billion in three weeks. The rescue trade paid off handsomely: Citadel’s flagship Wellington multistrategy fund returned 5.94% in July, its best monthly performance since 2022, aided in part by the discounted purchase.

“Only Citadel could have delivered a solution of this scale on this timeline,” Griffin wrote. A Citadel spokesman declined to confirm or deny whether the firm also received an SEC subpoena.

Why this matters for the AI trade

Three broader threads are worth watching.

First, leverage in AI equities is now a supervisory concern. Bank of America CEO Brian Moynihan publicly called the Situational Awareness meltdown “a warning shot” for leveraged financial markets. When a single fund’s unwind can move mega-cap chip stocks, prime brokers and regulators alike will re-examine how much concentration risk they’re willing to finance. Expect tougher margin terms for concentrated AI books.

Second, the fund survived — barely — by holding private AI assets. Situational Awareness retained its private stake in Anthropic, which is reportedly targeting an IPO at a valuation of up to $2 trillion, even as its public book was liquidated. The connection runs deeper than finance: Aschenbrenner’s wife serves as chief of staff to Anthropic CEO Dario Amodei. That private stake is the fund’s remaining lifeline — and, remarkably, the fund was still reporting an approximately 80% year-to-date gain even after July’s devastation.

Third, this is the first big stress test of AI-era market plumbing. The episode has already become the reference case for how quickly a leveraged, thesis-driven fund can implode when the underlying trade is crowded. Whether the SEC’s investigation produces charges or not, the reconstruction of this collapse — trade by trade, margin call by margin call — will shape how regulators, banks and investors think about AI concentration risk for years.

For a fund named after Aschenbrenner’s own manifesto on AI’s trajectory, the irony is brutal: the thesis may yet prove right, but the leverage nearly buried it. The SEC now wants to see exactly how the burial was avoided — and who paid for the rescue.