SEC subpoenas Goldman, JPM, Citi, BofA over Situational Awareness collapse

The SEC has opened an inquiry into how Wall Street’s biggest prime brokers financed one of the most leveraged AI trades of the cycle. Regulators are now pulling records from four of the largest US banks tied to hedge fund Situational Awareness, which nearly imploded in July after a chip sell-off blew up its leveraged book.

What the SEC is asking for

Regulators are seeking insights into Situational Awareness’s trades, use of leverage and communications with the investment banks, which include Goldman Sachs, JP Morgan, Citigroup and Bank of America. The subpoenas were first reported by the New York Times, with Reuters confirming the bank list.

The SEC is seeking information about the timing of trades that triggered margin calls and the banks’ communications with the fund regarding its leverage levels. The regulator has told banks to preserve information related to the hedge fund, though no wrongdoing has been alleged and the banks are not necessarily targets.

How the fund unraveled

The fund had commanded roughly $45 billion at its July high point, using as much as 400% leverage, before losing approximately $35 billion in assets after margin calls from prime brokers forced a distressed sale of its publicly traded holdings.

The fund, led by former OpenAI researcher Leopold Aschenbrenner, was forced to unwind much of its publicly listed portfolio, including large, concentrated and leveraged positions in SK Hynix and CoreWeave, after losses triggered several margin calls. Citadel stepped in to buy the positions at a discount understood to be about 10%.

Concentration risk in AI names

At the end of June, Sandisk and Micron Technology together accounted for more than 56% of its disclosed U.S. holdings. Sandisk stock fell nearly 47% in July; Micron stock dropped roughly 29%.

Ken Griffin said in a Friday investor letter that Citadel has since offloaded about 80% of the risk tied to the Situational Awareness portfolio, while SK Hynix and CoreWeave have since rallied.

Do you want to see how to make more plays? Do you want to find gains yourself?

Unusual Whales helps you find market opportunities through our market tide, historical options flow, GEX, and much, much more.

Create a free account here to start conquering the market with Unusual Whales.

Why this matters for the tape

The probe is the first major regulatory look at how prime brokers are underwriting the AI trade. Whether the banks’ conflicting roles as lenders, margin callers and deal facilitators were managed to serve the fund’s investors rather than the banks’ own balance-sheet interests is precisely what the subpoenas are designed to establish.

The episode is casting light on how leverage is increasingly supporting the broader AI investment boom. If the SEC pushes prime brokers to tighten margin terms on concentrated AI baskets, expect knock-on effects across the crowded semi and AI-infrastructure trade.

Situational Awareness responds

“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.”

Options market and stocks to watch

Watch GS, JPM, C and BAC for any headline-driven vol as the four subpoenaed prime brokers digest the SEC request. Historically, regulatory inquiries without wrongdoing findings tend to fade, but flow can spike on any escalation.

Also watch MU and the broader AI-infrastructure complex, given Situational Awareness’s outsized concentration in memory and semis. Any sign that prime brokers are pulling leverage on similar strategies could pressure the most-owned AI names.

Want more market intelligence? Create your free Unusual Whales account for options flow, market tide, GEX, and the full toolkit.