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

The U.S. Securities and Exchange Commission (SEC) has issued a subpoena to Goldman Sachs, JPMorgan, Citigroup, and Bank of America for their loans to Situational Awareness, the hedge fund that is focused on AI and saw its value drop by 67 percent in July. A source with knowledge of the issue provided this information to Reuters on August 24.

For investors and firms that are part of the AI boom, the probe by the SEC isn’t just about an individual fund’s alleged wrongdoing. It is looking at some borrowing practices used to intensify investments in firms such as Micron and SanDisk, as central banks continue to caution that being highly leveraged with a particular set of AI shares might threaten global financial stability.

What the SEC is actually asking for

The regulator is seeking information about the timing of the trades that triggered margin calls, as well as the banks’ communications with the fund over how much leverage it was carrying, according to Reuters, citing a person familiar with the matter. The New York Times first reported the subpoenas.

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