SEC Probes Situational Awareness Hedge Fund After $30B Collapse

SEC Opens Investigation Into Failed AI Hedge Fund

The Securities and Exchange Commission has launched an investigation into Situational Awareness, the artificial intelligence-focused hedge fund that nearly collapsed in July after losing billions on leveraged bets, according to The New York Times.

Regulators recently issued subpoenas to major Wall Street banks that provided trading services and margin loans to the San Francisco-based fund, three people familiar with the matter told the Times. The subpoenas request information about the timing of the fund's trades and its communications with lenders about borrowed capital, and instruct banks to preserve all related records.

Situational Awareness managed more than $30 billion at its peak and borrowed tens of billions more through leverage. Bank of America, Citigroup, Goldman Sachs, and JPMorgan Chase were among its major counterparties, according to regulatory filings.

Why it matters

The investigation highlights regulatory scrutiny of risk management practices in AI-focused investment vehicles that use extreme leverage. As artificial intelligence drives market volatility and attracts speculative capital, regulators are examining whether funds adequately disclosed risks to investors and whether their trading practices endangered broader market stability. The case may set precedents for oversight of emerging technology investments.

Rapid Rise and Sudden Collapse

Leopold Aschenbrenner, a 24-year-old former OpenAI researcher, founded the hedge fund just two years ago. It capitalized on the AI boom to generate substantial returns, but achieved those gains through heavy borrowing and complex financial instruments designed to amplify both profits and losses.

The fund's strategy unraveled in July when publicly traded AI company stocks declined while traditional technology stocks—which Situational Awareness had bet against—rose. The simultaneous moves forced the fund into a fire sale, and it sold most of its stock portfolio to rival hedge fund Citadel at a discount.

A Situational Awareness spokesman said the fund would "cooperate to the fullest extent with any regulatory request," noting that regulators routinely examine high-profile funds with significant returns or dramatic losses. The SEC declined to comment.

Remaining Assets and Connections

The fund retained a stake in Anthropic, the AI company planning a public offering that could value it at up to $2 trillion. Aschenbrenner's wife serves as chief of staff to Anthropic CEO Dario Amodei.

Any SEC investigation remains in early stages, and no wrongdoing has been alleged. The regulator oversees financial markets to protect retail investors and has previously brought civil cases against investment firms that produced large losses.

Spokespeople for the banks named in the report and for Citadel declined to comment.

These details were first reported by Rob Copeland and Matthew Goldstein of The New York Times.