Short-selling hedge funds, Morgan Stanley’s chief financial officer supposedly said during the depths of last year’s crisis, are like “cold blooded reptiles. They eat what’s in front of them.” Lately, however, some hedge funds have more closely resembled a house of cards, where a single knock can bring the whole thing down. Indictments for alleged insider trading from the Federal Bureau of Investigation and Securities and Exchange Commission are undoing Galleon. Meanwhile K1, a European fund of funds, may quickly come under pressure after German prosecutors said they were investigating possible fraud by its founder, Helmut Kiener.

If the allegations against Galleon and K1 are proved, such scandals – alongside Bernard Madoff’s – will be different in form but still have two things in common. The first is the length of time they allegedly carried on their game. Prosecutors claim Galleon’s insider trading scheme dates back to at least January 2006. Mr Kiener allegedly kept his creditors in the dark long enough to land them with about $400m of losses. And Mr Madoff spent years executing his Ponzi scheme.

Second, and more importantly, is how each of these operations posed little systemic risk. Unlike their bailed-out banking peers, individual hedge funds regularly fold – or blow up. Investors then withdraw their remaining funds and the financial world rolls on. Retribution is swift but the broader impact is small. Hedge fund assets have fallen from around $4,000bn two years ago to a quarter of that now, according to BarclayHedge. Yet no government bail-out has been seen.

Recent scandals suggest there is a need for better rules governing hedge fund disclosure and investor protection. But when it comes to systemic risk, although herding can in theory be a problem, hedge funds’ relatively small size means macro-prudential regulators would do better to focus their efforts on banks.