US banks have now received subpoenas following a massive margin call that nearly collapsed a hedge fund, resulting in billions of dollars in losses.
The four banks being subpoenaed by the Securities and Exchange Commission (SEC) include Bank of America, Citi, Goldman Sachs, and JPMorgan Chase.
There’s currently an early investigation into the events that nearly collapsed AI hedge fund Situational Awareness, which triggered a whopping $15 billion loss from Citadel rival Jane Street.
The massive $15 billion loss for Jane Street in July is the hedge fund’s first monthly downturn in 10 years.
The AI-focused hedge fund that saw roughly 67% of its portfolio value wiped out in July.
Now these massive US banks are being investigated for how it handled trades and its communications with lenders about borrowed money, and the amount of leverage used.
Spokespeople for all four banks declined to comment, as did the SEC.
Hedge Funds Lose and Mitigate Risk
US Banks Now Receive Subpoenas Following a Massive Margin Call.
Jane Street’s investment in Situational Awareness, the AI hedge fund started by Leopold Aschenbrenner, was one of those longer-term bets.
The hedge fund took a plunge last month as AI shares fell, forcing the young founder to offload most of its public equities book to meet margin calls.
Situational Awareness is still standing; the hedge fund has not sunk yet.
However, it is not without major losses for its investors including Citadel rival Jane Street, which said its downturn left its stake flat on the year.
Bloomberg reports that Jane Street’s bets in Asian equity markets were also challenging.
“We’ve closed a significant portion of our risk in the specific areas we lost on in July, and have also reduced risk-taking in other strategies,” Turner Batty, a Jane Street partner, said in an internal note.
“Our positions currently seem appropriate for our present risk tolerance.”
Citadel’s Ken Griffin Speaks Out on Situational Awareness
Citadel’s Ken Griffin said they are significantly unwinding exposure in a letter to its clients.
And while a Citadel spokesperson declined to confirm or deny if they were part of the SEC subpoenas, Griffin stated only Citadel could have delivered a “solution” to this mess.
“Only Citadel could have delivered a solution of this scale on this timeline,” Griffin wrote in the letter, as reported by the New York Post.
Clients were notified that Citadel had already unwound more than 80% of the aggregate risk from the Situational Awareness portfolio it purchased, executing more than 100 block trades worth over $4 billion in three weeks.
Situational Awareness has been cooperative stating that it is not surprised high-profile players are being investigated.
“It is to be expected that regulators would closely examine any funds that are high profile, produce significant returns or have particularly dramatic drawdowns,” a fund spokesman said in a statement to the Times.
“We are a highly regulated business and will cooperate to the fullest extent with any regulatory request.”
Yahoo Finance says, “Situational Awareness still has a lifeline: it retained its private stake in Anthropic while selling off its public equity book.”
“Anthropic is targeting an IPO at a valuation of up to $2 trillion. The connection runs deeper than finance; Aschenbrenner’s wife serves as chief of staff to Anthropic CEO Dario Amodei.”
Frank Nez is an American entrepreneur, journalist, writer, and investor. Frank's work has been cited by SEC and Congressional reports. Franknez.com is a personal finance and market news publication, dedicated to publishing content on money, investing, entrepreneurship, and retail investor news.
