SEC Subpoenas Wall Street Lenders Over Hedge Fund Meltdown

The U.S. Securities and Exchange Commission issued subpoenas to major Wall Street lenders regarding the trading activity and leverage provided to artificial intelligence-focused hedge fund Situational Awareness following its near-implosion in July 2026, according to people familiar with the matter.

Regulators sent requests for information and warnings to preserve records to prime brokers including Goldman Sachs, JPMorgan Chase, Citigroup, and Bank of America. The inquiry focuses on the timing of trades that triggered margin calls alongside communications regarding borrowed capital that magnified the fund's leveraged bets.

Situational Awareness was launched in 2024 by former OpenAI researcher Leopold Aschenbrenner and managed more than $30 billion at its peak while borrowing tens of billions more. The firm's portfolio value dropped 67% in July 2026 following a broad selloff in high-flying chip and AI equities combined with rising prices in traditional tech stocks that the fund had shorted. To cover margin calls, the firm engaged in a fire sale, selling most of its public stock portfolio to Citadel at a discount while retaining a stake in AI startup Anthropic.

The investment firm confirmed its intention to cooperate fully with regulatory inquiries while addressing the scrutiny facing high-profile market participants.

"It is to be expected that regulators would closely examine any funds that are high profile, produce significant returns, or have particularly dramatic drawdowns," Situational Awareness said in a statement. "We are a highly-regulated business and will cooperate to the fullest extent with any regulatory request."

The statement followed written correspondence sent from the fund's leadership to its investor base acknowledging the severity of the market downturn.

"We came closer to permanent capital impairment than is acceptable to us," Aschenbrenner wrote in the letter to investors, adding that while the firm ultimately found a solution, it never intended to be in that position.

Spokespeople for the SEC, Goldman Sachs, JPMorgan Chase, Citigroup, Bank of America, and Citadel declined to comment. Regulatory requests for information do not necessarily indicate enforcement action or accuse any firm of wrongdoing.