SEC Investigating Near-Implosion of AI Hedge Fund
- Reference: 0185136704
- News link: https://yro.slashdot.org/story/26/08/24/2155211/sec-investigating-near-implosion-of-ai-hedge-fund
- Source link:
> 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.
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> [...] 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.
[1] https://www.nytimes.com/2026/08/24/business/sec-situational-awareness-investigation.html
[2] https://slashdot.org/story/26/08/02/0359246/how-situational-awareness-hedge-fund-dropped-67-in-ai-stock-rout
Re: (Score:2)
What loans are they that can be called? I was under the impression that loans are made with specific terms of repayment and that's generally that.
Re: (Score:2)
Look up margin loan.
An example, The bank loaned you 80% of the purchase price. The stock went down, so now the bank's share of the investment is 90%, so they notify you and you can either add money of your own to get the bank's share back to 80%, or pay off the loan which you clearly could do only by liquidating the entire investment.
Margin loans (leverage) are great when prices are going up, but terrible for you when prices go down.
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Bubble pops don't happen all at once. They progress, first from the weak sisters to the big, name brand to-big-to-fail "omg my pension!" deals. Media exaggeration about historical finance collapses create the misperception that it happens very rapidly, with no warning. That's never the case; there are always precursors.
I don't know if this "Situational Awareness" is such a case, and you don't either. But this is exactly how the start of a larger collapse looks: a nasty little headline about some sketc
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Just need it to hurry along now. I'm hanging out for my cheap DRAM fix.
Bad Situational Awareness ... (Score:3)
Bad situational awareness can get you hurt :-)
AI is useful - but the hype is unreal (Score:3)
Hyped-up capability, hyped up calamities, and the hyped-up promise of get rich quick. Avoid the hype tsunami and the future could be interesting. But now more than ever you have to keep your head on straight.
Die rich or die trying (Score:3)
The factthat you worked at OpenAI doesn't make you a genius like Sam Altman.
Re: (Score:1)
The fact, that person is Scam Altman, does not make him a genius.
Is the bubble starting to burst? (Score:2)
Is it?
Re: (Score:3)
Yes. And no. AI is here to stay. Demand for hardware isn't going away. Companies and consumers are starting to dial in how they actually use and leverage the technology. Companies built on the hype around AI including hedge funds are going to definitely get a painful correction. AI is simply a tool and the faster companies see that, and learn how to use it correctly, the faster they will be able to profit from its use. It's not magic but it is powerful and useful.
Off topic but kind of funny to see the
Re: (Score:2)
> Demand for hardware isn't going away
I think that's likely wrong given a serious financial collapse: much of the hardware in play here is booked sales a year or more out. If the bottom falls out, those orders will get cancelled. Further on (speculation upon speculation...,) recovery would be more circumspect, and the demand for hardware less absurd.
Great Entertainment! (Score:3)
Entertaining video on this not-really-"hedge"-fund by Patrick Boyle: [1]https://www.youtube.com/watch?... [youtube.com] (Don't be alarmed by the first few seconds of that video... the giggling child to the right is actually the manager of that fund.)
[1] https://www.youtube.com/watch?v=rE75WvOtcu8
Pretty simple (Score:2)
For every dollar invested, he purchased 5 dollars worth of stock. When the stock went up, they claim fantastic returns. When the stock went down, they had to sell all their shares leaving them with zero assets. That's not called investing, that's called gambling!
More taxes, the Republican solution! (Score:1)
I mean fees. Fees! For brown people only!
A bit early in the process? (Score:2)
Normally during bubbles, things like this keep working fine until the bubble bursts because when the stocks and other assets keep going up in value it is hard to see if someone is making reasonable investments or not. That Situational Awareness fell apart even in the middle of this may mean they were overly risky even for ventures like this, or it may be evidence that we're in less of a bubble than many (including myself) think. One curious detail is that at least some people (such as many of the people who
Re: (Score:2)
He was over-leveraged and didn't manage risk well. In other words, he was a terrible fund manager.
AI versus Hedge Fund AI? (Score:1)
Given how AI behavior can be unpredictable or unexpectedly stupid, what are the odds that someone created an AI specifically tasked to look for and take advantage of any weaknesses or shortcomings in the hedge fund AI?
You're not an evil villian when you're rich (Score:2)
A self-important arsehole sees the pricing bubble and thinks he can have it all, the golden age will never end, and his immense wealth is proof of his righteous power and magnificence. Doubtless, this was compounded by Aschenbrenner hiring employees happy to copy his delusions of self-importance (Emperor's new clothes). His arrogance meant he didn't look at the unpleasant reality barrelling towards him.
Re:Couch change (Score:4, Interesting)
NO company should be allowed to be "too big too fail". If you're too big to fail, then immediate antitrust breakup of your company should be mandatory. Are the people implementing the circular finance scheme creating the bubble expecting to get rich on the government bailout? Absolutely! They assume if the government spent tax dollars to cover the billionaire's losses before, they will do it again. I'm sticking to my original strategy: don't invest anything in crypto or AI.
Re: (Score:1)
The problem is once you accumulate that much money you have a ton of power. The only way to do away with too big to fail companies is to do away with billionaires and trillionaires.
And you cannot get the public at large to understand that just because you aren't going to let Elon Musk have a trillion dollars doesn't mean you're going to steal their house and give it to one of "those" people (insert whichever those people you prefer here).
Seriously I cannot get people to understand that just because E