Here's the problem with a Ponzi Scheme: You can only really steal most of the money people give you, and eventually it'll collapse. At that point, expect some legal consequences. Maybe you can steal enough to keep yourself afloat during your flee from justice?
It's a bad life, the life of inevitably-discovered crimes. What can I say.
What would be better, really, would be if you could steal a little bit, in a complicated way, and use that as bait to get more clients through the door. After all, there's no fundamental reason that fund returns are the only reason people would pour money in. All you need is for them to invest – if it's because they feel you're lucky, generically, because of their astrology signs, for instance, all the better – it means you can pay out less when people want their money out. This fund didn't work out, sorry – try again when omens favor alpha. At the end of the day, fake excess returns are one of the more expensive ways to defraud someone, when you think about it.
Better to have a private fund, available only to people you trust. That one could be the best in the world! And you'd sell other funds to outsiders – they can trust your expertise, after all, see, you have the highest returning fund in the world.
These other funds, of course, might occasionally lose money. Maybe they bought up a lot of a certain stock, and then it lost value. Would you be obligated to disclose that it might have lost that value because your private fund already owned the stock and sold it off after the public fund bought in? I'm not a lawyer, but I've never seen such a disclosure, and given it's a private fund, I suspect it isn't needed.
That example might (technically) be an illegal pump and dump. But you can find bad bets much easier than good ones, and having funds with different risk profiles be on opposite sides of a bet might be legal in many circumstances. The point is, even without bookkeeping shenanigans, stealing from one fund to make another risk is possible, so long as the private fund can remain completely secret. It's likely many insiders – who can only purchase the fund – wouldn't have access to trade timings fine enough to detect this in a computer-based trading firm.
And wouldn't you know it, the top-returning fund is a private fund by an automated trading firm. To see one group on top for so long in as dynamic a field as computer-directed stock trading is quite impressive.
Of course, real life isn't nearly as interesting as a thought experiment. No, we may be doomed to a totally boring, legal and even moral leading hedge fund. It saddens me to think this high stakes The Sting-esque gambit exists only in my mind. I've seen no indication of impropriety. But a naive guess, based on implausible returns, might inspire a crime, and this is one I'm not sure we have the tools to detect.