This is literally my backyard. If the hedge blows up, whoever is holding the positions is ultimately responsible. When it comes to shorts, they have to locate the stock to borrow from someone. No idea who this groups custodian is, but essentially whoever is authorizing the shorts as borrowed would be the person liable if they over extend the hedge fund. Honestly, it isn't very easy to do, and they are probably pretty well capitalized even with the losses. Typically it would be a clearing firm though.