Situational Awareness, an AI-focused hedge fund founded in 2024 by Leopold Aschenbrenner, nearly collapsed after lenders demanded repayment when AI stocks fell sharply over the summer. The firm sold roughly $20 billion in stocks to Ken Griffin’s Citadel at a discount, reducing its assets from about $45 billion at its July peak to around $10 billion. The episode has drawn attention to hedge-fund borrowing from banks, which reached nearly $3.7 trillion by midyear, the highest level in more than a decade, according to the Treasury Department. The Securities and Exchange Commission (U.S. securities regulator) subpoenaed Goldman Sachs, JPMorgan Chase, Citigroup and Bank of America for information about their dealings with the fund. Regulators have warned that forced selling by heavily leveraged funds could spread losses across markets. The fund’s executives had sought to increase its leverage ratio to 10 times investor capital from four times. The S&P 500 has recorded 27 all-time closing highs this year and returned 158% on a total-return basis since 2020. The SEC has proposed easing some hedge-fund borrowing disclosures, a move criticized by Senator Elizabeth Warren and Healthy Markets Association President Tyler Gellasch. Situational Awareness now has 25 employees, including three focused on compliance, while talks with Morgan Stanley over additional borrowing have resumed.