SEC Probes Wall Street's Role in AI Hedge Fund Near-Collapse

The US Securities and Exchange Commission (SEC) has issued subpoenas to major banks, including Goldman Sachs and JPMorgan Chase, as part of an investigation into their dealings with Situational Awareness, a high-profile AI hedge fund.

The inquiry follows the fund's near-collapse during July's brutal selloff in AI-related stocks. At its peak, the fund reportedly commanded tens of billions of dollars, with leverage amplifying both its gains and vulnerability.

When AI stocks tumbled in July, the fund's concentrated positions became a storm rather than a shelter, forcing Situational Awareness to liquidate positions under pressure. The fund lost roughly 67% of its portfolio value, accelerating the damage.

The SEC is seeking information about when trades were executed, how the fund communicated with lenders, and how borrowed capital was used. Regulators are examining the machinery surrounding those investments, the relationships between the fund and its lenders, the timing of trades, the margin process, and the flow of information during the crisis.