Key facts
- The SEC is investigating AI-focused hedge fund Situational Awareness LP.
- The fund's assets dropped from $45 billion to $10 billion due to a market correction.
- Losses triggered margin calls, forcing the liquidation of most of its public equity portfolio.
- Citadel acquired approximately $16 billion in assets from the distressed sale.
- The SEC has subpoenaed major Wall Street banks for details on the fund's trading and leverage.
The U.S. Securities and Exchange Commission is reportedly investigating Situational Awareness LP, an artificial intelligence-focused hedge fund, following a significant market downturn that led to substantial losses and a drastic reduction in its assets under management. The fund, launched by Leopold Aschenbrenner, who previously departed OpenAI, had grown to approximately $45 billion in assets by early July 2026.
A sharp correction in semiconductor stocks wiped out an estimated $35 billion, causing the fund's assets to plummet to around $10 billion, a drawdown of about 67%. The fund's aggressive, concentrated bets on AI infrastructure equities had previously yielded significant returns. However, the market downturn triggered margin calls from major financial institutions including Goldman Sachs, JPMorgan, Bank of America, and Citibank, compelling the fund to liquidate most of its public equity portfolio.
Ken Griffin's Citadel emerged as the buyer of approximately $16 billion in assets from this distressed sale. Citadel subsequently moved to reduce its exposure by unwinding over 80% of the acquired risk through block trades. Despite the turmoil in its public market holdings, Situational Awareness LP did not cease operations entirely. The fund shifted its focus to private investments, deploying an additional $400 million into a previously undisclosed private company, bringing its total commitment to that single entity to $500 million.
The SEC has sent subpoenas to major Wall Street banks seeking details on the AI-focused fund's communications with lenders about its leverage and the timings of its trades. The investigation is in its early stages, and there is no guarantee it will result in fines or punishment.