--- title: "The SEC is asking the banks who funded an AI hedge fund that nearly blew up" description: "Situational Awareness lost billions in July when AI stocks fell and margin calls forced it out. Citadel took most of its book. The subpoenas went to the banks that supervised its trading and channeled funding to it. Nobody has been accused of anything." category: "Companies" category_url: https://boursel.com/category/companies author: "Olivia Chen" published: 2026-08-25T01:37:39.000Z updated: 2026-08-25T01:37:39.000Z canonical: https://boursel.com/article/the-sec-is-asking-the-banks-who-funded-an-ai-hedge-fund-that-nearly-blew-up tags: ["sec", "hedge funds", "ai", "leverage", "prime brokerage", "regulation"] --- # The SEC is asking the banks who funded an AI hedge fund that nearly blew up Situational Awareness lost billions in July when AI stocks fell and margin calls forced it out. Citadel took most of its book. The subpoenas went to the banks that supervised its trading and channeled funding to it. Nobody has been accused of anything. The Securities and Exchange Commission has [sent subpoenas to major Wall Street banks](https://fortune.com/2026/08/24/sec-subpoenas-wall-street-banks-situational-awareness-hedge-fund/) over the trading of Situational Awareness, an AI-focused hedge fund that came under pressure last month and was forced out of many of its positions. The fund is run by Leopold Aschenbrenner, a former OpenAI researcher, and [billions of dollars of value were erased at the end of July](https://techcrunch.com/2026/08/24/situational-awareness-star-ai-hedge-fund-that-nearly-imploded-now-being-probed-by-the-sec/) when AI stocks fell. Margin calls forced liquidation. Ken Griffin's Citadel acquired the bulk of the public stock positions. Say the necessary thing at the top: the fund has not been accused of any wrongdoing, the SEC declined to comment, and an inquiry can end without enforcement. This is a regulator asking questions. ## Who received the subpoenas is the point The subpoenas did not go to the fund. They went to the banks, and specifically to those that [supervised the fund's trading and that channeled funding to support it](https://techcrunch.com/2026/08/24/situational-awareness-star-ai-hedge-fund-that-nearly-imploded-now-being-probed-by-the-sec/), with instructions to preserve information. That phrasing describes prime brokerage. A prime broker lends a fund money and securities, holds its collateral, and sets how much leverage it may run against a given portfolio. When a concentrated position falls, the prime broker issues the margin call, and if the fund cannot meet it, the broker liquidates. An inquiry aimed at the funders rather than the fund is therefore asking a specific question: how much leverage was extended, against how concentrated a book, and did each bank know what the others were also lending against the same positions. That last part is the one with history attached. ## Why concentration and leverage together are the risk A fund that borrows to hold a diversified portfolio is a normal thing. A fund that borrows to hold a small number of correlated positions is a different animal, because the diversification that makes the collateral safe is absent precisely when it is needed. AI equities have been moving together. That is what makes the sector a good story and what makes a levered bet on it fragile: on a bad day, everything in the book falls at once, the collateral shrinks, the margin call arrives, and selling into the decline makes the decline worse. Nothing about that requires anyone to have done anything improper. It is the mechanism working as designed. The reason regulators look at the banks afterwards is that each lender sees only its own exposure. A fund can run modest-looking leverage at five institutions and enormous leverage in total, and no single prime broker necessarily knows. ## Where this sits in the AI financing picture We have been following how the AI build is paid for from the corporate side: [$220 billion of technology debt issued this year against $12.5 billion in the same stretch of 2025](/the-bond-market-has-started-charging-more-for-ai-even-to-the-safest-borrowers), Amazon's $25 billion bond sale, and roughly [$3 trillion of commitments sitting in the notes rather than on the balance sheets](/nine-companies-have-signed-3-trillion-dollars-of-ai-commitments-that-sit-off-the). This is the same question one layer out. Not how much debt the companies building AI have taken on, but how much borrowed money is invested in their shares. Both are answers to how leveraged the trade is, and the second one is much harder to see from outside, because hedge fund borrowing is disclosed to prime brokers and regulators rather than to markets. A single fund unwinding in July, absorbed by a larger one, is a small event. The interesting thing is that a regulator now wants to know how it was financed. ## The fund's answer Situational Awareness said it would cooperate fully with any regulatory request, and made the reasonable observation that scrutiny follows high-profile funds: "It is to be expected that regulators would closely examine any funds that are high profile, produce significant returns, or have particularly dramatic drawdowns." That is true, and it is worth holding alongside the rest. A drawdown is not misconduct, a subpoena is not a charge, and the most likely outcome of most inquiries is that nothing further happens. What would make this consequential is not an enforcement action against one fund. It would be a finding about how much leverage the street extended against a single crowded trade, because that number would say something about the next drawdown rather than the last one.