Hedge fund sues its investors in wake of collapse -- offers to settle

Every once in awhile there's a really ridiculous ridiculous news story. In the financial press, there are several every day, including the judge who sued a mom and pop dry cleaner for $54 million and then cried about it in court. But perhaps the most ridiculous item today is the hedge fund that has sued its investors for withdrawing their money from the fund before it imploded after two of its founder admitted to lying about $450 million that was in the fund.

Now the fund is offering to settle with the investors who took money out. They can give back half. The Wall Street Journal sums it up nicely (emphasis added): "Under the plan, the hedge fund would settle lawsuits it brought against more than 100 investors who got out of the fund before Bayou imploded in 2005. Bayou is proposing that those investors give back half the money they took out -- rather than the full amount that the lawsuits are seeking."

What? An investor who found the settlement offer ridiculous has this to say: ""Am I supposed to give back profits from a stock, too, if it goes down after I sell?"

This is ridiculous. Why should people have to give money back because they were smart enough or lucky enough to get out before it imploded. If some investors had insider information that the fund was engaging in fraud (One of the managers was among those who cashed out), that is different. But why penalize innocent people for avoiding a fund's implosion?