SEC subpoenas big banks over Situational Awareness trades

In short: The SEC has sent subpoenas to several major Wall Street banks for information tied to the trading and borrowing of the AI-focused hedge fund Situational Awareness.

What happened

Regulators have sent subpoenas to big banks, asking for information about trading in Situational Awareness, according to people briefed on the outreach cited by The New York Times. The banks named in the reporting include Bank of America, Citi, Goldman Sachs, and JPMorgan Chase.

The subpoenas are part of an early-stage inquiry by the SEC, the main US stock market regulator. The requests reportedly focus on when the fund placed certain trades and what it told lenders about borrowed money and “leverage” (using borrowed cash to make larger bets, like buying a house with a mortgage).

Regulators also told the banks to preserve relevant records, meaning they should not delete messages or documents that could matter to the inquiry. The reporting describes the inquiry as preliminary, and it does not guarantee penalties or other action.

Situational Awareness reportedly suffered a steep decline in July. One report said about 67% of its portfolio value was wiped out. At its peak, the fund reportedly managed more than $30 billion in assets and borrowed tens of billions more.

Why it matters

When large funds borrow heavily from major banks, trouble can spread quickly if their bets go wrong. If lenders demand more money back fast, it can force rapid selling, which can shake markets and hurt other investors, even people who never heard of the fund.

Source: NYTimes