The SEC Reportedly Wants To Know More About Wall Street Banks’ Role In The Fall Of Situational Awareness

The Securities and Exchange Commission (SEC) has subpoenaed top Wall Street banks to learn about their role in the fall of the Situational Awareness hedge fund, according to a new report.

Goldman Sachs, JP Morgan, Citigroup and Bank of America have been contacted as the entity seeks to learn more about the fund's use of leverage and its communication with banks.

CNBC noted that the communications don't mean any parties have been accused of wrongdoing.

Situational Awareness, led by Leopold Aschenbrenner, reacted to the development in a statement, saying "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," the document added.

Aschenbrenner's fund had bet that the AI boom would drive sustained demand for chips, memory, data centers and electricity.

The hedge fund had reportedly grown to approximately $45 billion at the beginning of July before the market downturn eroded the value of its portfolio. Situational Awareness had been reportedly negotiating to sell its stake in AI startup Anthropic.

The fund's largest publicly disclosed holdings at the end of the first quarter included Nebius Group, SanDisk, Micron and CoreWeave. All four companies had lost more than 35% of their market value before the latest rebound. That triggered margin calls and compulsory sales at the fund.

The fund's assets were then sold at a discount to Ken Griffin's Citadel, which recently announced it has unwound most of the risk tied to it.

The fund unwound more than 80% of the aggregate risk from the portfolio it bought. It conducted over 100 block trades for more than $4 billion in market value.

"A transaction of this magnitude could not have been completed without the extraordinary cooperation of the trading and prime brokerage teams at the banks serving both firms," Griffin said in the letter. "I am grateful for the focused effort they brought to the rapid transfer of the portfolio."

Citadel's flagship Wellington fund posted 5.9% returns in July, its largest in years, after buying the assets from Aschenbrenner's fund.

CNBC detailed that the return is the best since 2022 and pushed this year's gains to 12%. It follows the decision of buying most stocks held by the collapsed funds after it saw large losses resulting from margin calls and forced asset sales.