SEC probes Wall Street banks over loans tied to 67% AI hedge fund collapse

The U.S. Securities and Exchange Commission has launched a formal investigation into lending practices at four major Wall Street banks following the dramatic collapse of Situational Awareness, an AI-focused hedge fund that lost 67% of its value in July 2026. On August 24, the SEC issued subpoenas to Goldman Sachs, JPMorgan, Citigroup, and Bank of America seeking detailed information about their loan arrangements with the fund, according to Reuters reporting and initial disclosure by The New York Times.

The regulatory inquiry focuses specifically on the timing of trades that triggered margin calls and communications between the banks and the fund regarding leverage levels, according to sources familiar with the matter cited by Reuters. The investigation reflects broader regulatory concern about the interplay between hedge fund leverage, bank lending practices, and market stability during periods of elevated volatility in technology and AI-related equities. Notably, Reuters emphasizes that the subpoenas do not constitute evidence of wrongdoing or indicate that any of the four banks are formal targets of an enforcement investigation.

Situational Awareness, founded by Leopold Aschenbrenner, a former OpenAI researcher known for influential essays on artificial general intelligence competition, began operations in 2024. The fund achieved exceptional early returns of 439% during the first half of 2026, according to RCK Analytics, through an investment strategy that employed approximately 4x leverage. As of its second-quarter 13F filing, the fund maintained a $20.24 billion U.S. stock portfolio heavily concentrated in semiconductor stocks, with SanDisk and Micron representing 55% of total holdings. The subsequent decline in AI-related equities triggered cascading margin calls that forced liquidation of the concentrated position.

In a statement, Situational Awareness characterized the SEC investigation as routine oversight, noting that "it is to be expected that regulators would closely examine any funds that are high profile, produce significant returns, or have particularly dramatic drawdowns." The fund committed to full cooperation with regulatory requests. Both the SEC and the four financial institutions declined further comment on the investigation.