The Connecticut Department of Banking has had enough. After watching multiple hedge funds fail, they have decided to create an oversight unit to detect fraud and other hedge fund problems.

The unit's main objective is to help prevent or detect fraud and will give the state greater oversight of the hedge fund industry. The unit, which has recently begun operating, has not yet passed any new regulations for hedge funds.

Currently, the department regulates hedge funds whose portfolio holdings are less than $25m (€19.9m), and has anti-fraud authority over advisers whose holdings surpass $25m. The new unit would ultimately look to make all hedge funds follow the same anti-fraud regulations currently in place for larger firms.

The problem with hedge funds isn't fraud, isn't stupidity. Once people realized there was money in hedge funds, it flowed like crazy into new funds, many of which weren't sound in their investing practices. To paraphrase Warren Buffett, it's a case where "what the wise do in the beginning, fools do in the end."