The subpoenas asked for details on the timing of Situational Awareness’s trades and for its communications with lenders about the money it was borrowing, also known as “leverage,” two of those people said. The subpoenas additionally warned the banks to preserve any information regarding the San Francisco hedge fund. The S.E.C. oversees financial markets with an eye toward protecting small investors, and has brought civil cases regularly against investment firms that produced large losses. Any investigation into Situational Awareness would be at its earliest stages, and it’s no guarantee that it would lead to fines or other punishment. The hedge fund has not been accused of wrongdoing.
[…] Situational Awareness had a fast rise and an even quicker retreat. Founded just two years ago by Leopold Aschenbrenner, a former researcher at OpenAI, it rode the A.I. boom to soaring investment returns. To achieve those results, however, the fund relied on heavy borrowing, as well as complicated and expensive financial instruments that magnify gains — and losses. The latter piled up quickly last month when the stock prices of publicly traded, high-flying A.I. companies dipped. At the same time, shares in more traditional technology companies — which the hedge fund had been betting against — rose, compounding the problem. Situational Awareness was forced into a fire sale. It wound up selling most of its stock portfolio to a rival, Citadel, at a discount.
