They shouldn't have to damage anybody here. You could manage this in a way that would make this just a great stimulus to gamestop and a benefit to all investors.
You'd need some creative new contractual institutions though.
Plus you also have to be worried about this impacting future investment (because it could frighten new investment if people think their investments will be out of their hands in some situations).
I don't think it's wise to destroy hedge funds, given they could have been used to prevent the fallout of real world catastrophes such as disease, floods, tsunamis, earthquakes, etc. The problem nowadays is that hedge funds don't hedge for this reason, they hedge purely for nominal benefit and simplistic capitalist needs.
They need reform, but more than that, we need to change the way we think about money globally. The money is just a tool and people exploiting that tool to the detriment of others is actually not helping them in real terms.