SEC scrutiny follows AI hedge fund’s brutal unwind

SEC scrutiny follows AI hedge fund’s brutal unwind
Situational Awareness rode the AI boom into hedge-fund stardom, then found out how quickly leverage can turn a market bet into a fire sale. Its public-equity retreat has now drawn the attention of US securities regulators.

Founded in 2024 by former OpenAI researcher Leopold Aschenbrenner, the fund built its case around the enormous computing, chip and energy buildout needed for advanced AI. It had returned 439% through June and reportedly swelled to as much as $45 billion at its peak, before AI-infrastructure shares began to slide.

The reversal accelerated last month. A sell-off in AI stocks, especially chipmakers, hit positions including SK Hynix, Sandisk, Bloom Energy and Nebius; leverage amplified the losses and triggered a barrage of margin calls. Aschenbrenner had urged investors to provide fresh capital, calling the sell-off a buying opportunity, but the hoped-for commitments did not arrive.

Citadel stepped in as the exit gathered pace. One report said Ken Griffin’s firm bought the bulk of Situational Awareness’s public bets, while another said Citadel had scooped up 80% of the portfolio. Axios, citing a source, went further, reporting that the fund sold its entire public-equities book to Citadel. The differing descriptions point to the same essential outcome: a rapid unwinding by a fund that could no longer wait for its AI thesis to recover.

Situational Awareness still holds private investments, most notably an Anthropic stake Bloomberg valued at $5 billion, offering investors a potential counterweight to the public-market losses.

Now the SEC has sent subpoenas to major Wall Street banks seeking information about the fund’s trading activity, according to people familiar with the matter. The regulator declined to comment, and the report stressed that an inquiry does not establish wrongdoing or necessarily lead to enforcement. The fund cast the scrutiny as unsurprising: “It is to be expected that regulators would closely examine any funds that are high profile, produce significant returns, or have particularly dramatic drawdowns.” It added: “We are a highly-regulated business and will cooperate to the fullest extent with any regulatory request.”

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