* Citadel stepped in after Situational Awareness losses on

AI stocks

* Citadel has done multiple deals with ailing firms

* Griffin also involved in Enron, Amaranth Advisors, Melvin

Capital

By Svea Herbst-Bayliss, Manya Saini and Anirban Sen

July 31 (Reuters) - When rival hedge funds face catastrophic

losses, billionaire investor Ken Griffin has a habit of

identifying opportunities and showing up with a checkbook.

Citadel's founder this week reprised his role as one of Wall

Street's rescue buyers, stepping in to salvage California hedge

fund Situational Awareness as it buckled under souring bets on

artificial intelligence stocks.

Amid market rumblings that at least one firm was in trouble,

Griffin, 57, assembled his top lieutenants to investigate,

according to five people with knowledge of the matter.

By Wednesday morning, Citadel executives had reached out to

Situational Awareness, and Griffin spoke directly with Leopold

Aschenbrenner, the fund's young founder and a former OpenAI

researcher.

Together with Citadel co-Chief Investment Officer Pablo

Salame, Chief Operating Officer Gerald Beeson, Perry Vais, its

head of equity quantitative research, and Chief Legal Officer

Shawn Fagan, Griffin pulled an all-nighter to analyze the

trading book positions of Situational Awareness and how liquid

the bets were, the sources said.

After a selloff in AI stocks, the Situational Awareness

portfolio lost 67% of its value in July, and the fund was forced

to unwind most of its $16 billion public equities book. By

Thursday, Citadel had bought a chunk of its book.

"We let you down," Aschenbrenner wrote to his investors in a

letter seen by Reuters.

Word spread quickly on Wall Street that Citadel, one of the

world's largest hedge funds which prides itself on disciplined

risk-taking and seizing market opportunities, had stepped in.

"There are only a few firms that could take down this much

risk," said one investor familiar with the deal who was not

authorized to speak publicly.

Reuters could not ascertain how much money Citadel had made

on the deal, although many AI stocks in the portfolio have risen

since.

Representatives for Citadel and Situational Awareness

declined to comment.

A DECADES-OLD PLAYBOOK

For Griffin, who began trading from his Harvard University

dormitory some four decades ago and now oversees $71 billion in

assets, it is a playbook that stretches back decades.

"During market stress, the collective judgment of our

business leaders, risk managers and portfolio managers enables

us to capitalize on market opportunities when others, who depend

on simplistic stop-loss approaches, cannot," Griffin wrote in a

2023 letter to investors seen by Reuters.

When energy company Enron filed for what was then the largest

bankruptcy in U.S. history in 2001, Griffin chartered a jet that

same day, dispatching top Citadel executives to interview nearly

all of the energy traders and analysts who had worked there, the

Financial Times reported last month and one of the sources

confirmed.

The recruits would go on to shape Citadel's commodities

franchise for years. It was an approach Griffin would return to

time and again as markets lurched from one crisis to the next.

In 2007, $3 billion hedge fund Sowood Capital transferred a

portion of its portfolio to Citadel after Sowood became the

first high-profile fund casualty of the global financial crisis

sparked by subprime lending that led to the collapse of firms

including U.S. investment bank Lehman Brothers.

"Citadel offered the only immediate and comprehensive

solution," Sowood founder Jeffrey Larson wrote to clients,

Reuters reported at the time.

The Sowood move followed on the heels of Citadel rescuing the

energy portfolio of failed hedge fund Amaranth Advisors, which

went out of business after losing $6.4 billion from bad bets on

natural gas trading.

And in 2021, when Main Street investors uniting on social

media platform Reddit took the opposite side of prominent hedge

fund Melvin Capital's bet against ailing video game retailer

GameStop ( GME ), Citadel stepped in again.

Together with Steven Cohen's hedge fund Point72 Asset

Management, where Melvin's founder Gabe Plotkin had previously

worked, Citadel injected $2.75 billion into the troubled firm.

'CAN I TOLERATE THAT LOSS?'

Griffin was born in Daytona Beach, Florida, in 1968.

After placing his first convertible bond trades as a college

student, he founded Miami-based Citadel in 1990 in Chicago and

built it into one of the world's most profitable hedge funds.

Forbes estimates Griffin's personal fortune at roughly $52

billion. In 2002, Griffin expanded beyond hedge funds by

co-founding Citadel Securities, a market maker that has become a

cornerstone of global trading.

Griffin has donated more than $2.5 billion to causes ranging

from medical research to educational institutions, and made

headlines ​for giving more than half a billion ​dollars to his

alma mater, ⁠Harvard.

Griffin is known as a prominent Republican donor who has weighed

in on thorny topics like President Donald Trump's tariffs,

calling them a "huge policy mistake."

On the Goldman Sachs Great Investors Podcast in June,

Griffin said, "You'll never manage a portfolio for every

possible tail event but you should stay very focused on what is

the worst-case scenario. Can I tolerate that loss? And monitor

and maintain your exposures such that that loss is a tolerable

loss."