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There is a belief that hedge fund investors are smarter than the average bear/wealthy enough to not be adversely affected by risk so they are not tightly regulated from the "protect the investor" vantage point. Most hedge funds have pretty hefty initial investment thresholds designed to filter out those not well-off enough to be able to absorb the risk.
In reality, most Ponzi schemes are pretty easy to spot given enough information. And there was enough information available to have led several prominent analysts to publicly question the accuracy of the fund's financial reports.
Hedge funds are risky in an all-or-nothing way. Many times its either a home run or a strikeout.
Hedge funds shouldn't be used as primary investment vehicles anyway. Their primary purpose is to hedge against risks that cannot be offset by diversification such as exchange-rate risk.
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