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The SEC has reportedly subpoenaed major Wall Street banks for records of trades and financing tied to Situational Awareness, an AI-focused hedge fund that came close to collapse.
The inquiry targets the prime brokerage stack: the credit and financing arrangements that banks extended to the fund, and how that exposure was managed as the fund moved toward failure.
Prime brokerage is the financing layer that sits between a hedge fund's positions and the capital backing them.
Banks extend credit against those positions; when the positions deteriorate, the exposure does not stay neatly with the fund. It runs back through every lender in the chain.
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