Bloody hell, the whole
point of a hedge fund is to be able to invest at your own risk without nanny government protecting you. If I want to invest in high-risk dubious schemes and am fully aware of that fact, I should be allowed to. With high risk comes the potential of high rewards, but the SEC wants to put everyone in the rubber room of "safe" investments.
The whole reason hedge funds are booming is precisely because they are unregulated. There are few restrictions, and as a result you have a wild and wooly ecosystem that occasionally spawns brilliant ideas. Economics 101. Less regulation generates large average upside.