That is theft.
I expect this sort of gate is well-described in the fund documents. It's not "theft" if the investors agreed to it, and shame on the investors if they don't like what they signed up for.
It’s a ‘hedge’ fund. It’s inherently very high risk, and normally people who invest in a hedge expect to lose that money.
A hedge position, properly used, is effectively an insurance policy. It’s a high-risk, high-gain bet that should be placed directly against your major holdings, so that if your real asset base takes a hit, the hedge fund - which was betting the other way - makes up the difference. For example, if half your assets are in pharmaceutical stocks, it’s a sensible hedge position to take to be that pharmas will tank. You’ve then got things set up so that no matter which way the stock moves your basic financial position is protected.
So the people who are losing their money from this hedge fund are probably making it along just fine.