SEC Probes Goldman, JPMorgan Over AI Fund Collapse

The Securities and Exchange Commission (SEC) has launched an investigation into the near-collapse of AI-focused hedge fund Situational Awareness LP. The SEC sent subpoenas to Goldman Sachs, JPMorgan Chase, Citigroup, and Bank of America demanding records of their dealings with the fund.

The probe examines the timing of margin calls that forced the fund's liquidation, its leverage arrangements, and communications between the banks and fund management in the days before the distressed sale. The SEC is treating this as a matter requiring careful documentation, issuing preservation orders to all four banks.

The investigation centers around a structural conflict where Goldman Sachs, JPMorgan Chase, and Bank of America simultaneously served as the fund's lenders, issuers of margin calls, and facilitators of the transaction that sold the fund's $16 billion public equity portfolio to Ken Griffin's Citadel. The SEC is investigating whether these roles created incentives that shaped the banks' decisions in ways that harmed fund investors.

Situational Awareness operated at approximately four-to-one leverage, borrowing roughly $4 for every $1 of investor capital and deploying as much as $45 billion in total exposure against a smaller base of investor equity. The mathematics of leverage at this ratio are unforgiving: a 25% decline in the underlying positions mathematically eliminates 100% of investor equity.

The fund retains an Anthropic stake worth $5 billion, acquired when Anthropic was valued at approximately $60 billion in an early investment round. This stake survived the margin call cascade entirely intact due to how margin lending works: prime brokers extend credit against public market securities because those securities have observable prices for collateral.