SEC Probes Situational Awareness After AI Hedge Fund’s 67% July Plunge

Situational Awareness, the AI-focused hedge fund founded by former OpenAI researcher Leopold Aschenbrenner, is facing scrutiny from the Securities and Exchange Commission after a sharp July downturn forced it to unwind much of its publicly traded stock portfolio.

The SEC has subpoenaed major Wall Street banks that worked with the fund, seeking information about its trading activity, financing and communications with lenders, according to The New York Times. Banks were also reportedly instructed to preserve information related to Situational Awareness.

SEC scrutiny follows dramatic July losses

The regulatory inquiry comes after Situational Awareness suffered a 67% decline in its portfolio during the July sell-off in AI and semiconductor stocks. The fund had built highly concentrated positions in companies tied to the AI boom while using substantial leverage.

As losses triggered margin calls, the firm was forced to sell much of its public-equity portfolio. CNBC reported that Citadel stepped in to acquire a large portion of those holdings during an emergency transaction at the end of July.

The SEC is reportedly examining the timing of trades that contributed to the losses and the fund’s interactions with banks that provided financing.

Situational Awareness has not been accused of wrongdoing. The firm said regulatory scrutiny should be expected for high-profile investment funds that experience unusually large gains or losses and said it would cooperate fully with any regulatory request.

Aschenbrenner launched Situational Awareness in 2024 after leaving OpenAI, building the fund around a thesis that the rapid expansion of artificial intelligence infrastructure would create major investment opportunities. Its July reversal showed how quickly concentrated AI bets can reverse when technology stocks fall.