The US Securities and Exchange Commission has sent subpoenas to major Wall Street banks seeking information about the hedge fund Situational Awareness, according to people familiar with the matter.

The information being sought relates to the trading activity of the hedge fund, which came under pressure and was forced to exit many of its positions last month, said the people, who asked not to be identified because the matter is confidential. The New York Times earlier reported on the SEC's subpoenas.

A spokesperson for the SEC declined to comment. An inquiry by the SEC does not necessarily mean that a firm or an individual is the focus of an investigation, and a probe by the regulator can end without an enforcement action.

The SEC is the primary federal regulator of the US securities markets, with authority to enforce the nation's securities laws, and subpoenas are a standard tool regulators use to compel the production of documents and testimony while reviewing potential issues.

The fund's troubles came to a head during last month's rout in AI-related stocks, when Situational Awareness faced a barrage of margin calls — demands from lenders to post additional collateral as the value of holdings falls — and began liquidating some of its equity positions. Ken Griffin's Citadel, one of the world's largest hedge funds, stepped in to buy the bulk of the fund's public stock bets.

Rapid, leverage-driven unwinds of this kind have been a recurring focus for regulators. The 2021 collapse of the family office Archegos Capital Management, which also followed unmet margin calls, forced banks to unload tens of billions of dollars in shares and left them with combined losses of more than $10 billion, prompting closer scrutiny of prime-brokerage lending and hedge fund leverage. Policy bodies including the Financial Stability Board and the International Monetary Fund have repeatedly warned about leverage building at hedge funds and other nonbank financial institutions.

"It is to be expected that regulators would closely examine any funds that are high profile, produce significant returns, or have particularly dramatic drawdowns," Situational Awareness said in a statement on Monday. "We are a highly-regulated business and will cooperate to the fullest extent with any regulatory request."

The SEC has not accused Situational Awareness or any bank of wrongdoing, and there is no public indication of what specific issues, if any, the document requests are intended to address.

Source: Fortune