What he did with the money is irrelevant. He sold people a lifetime support contract. He then decided he wanted them to pay more, so he canceled them all just because he felt like it. The fact that his original sale was a stupid idea is also immaterial. Every one of those people should get a refund, because he's explicitly told them they're not getting what they paid for. Instead he keeps their money and invites them to give him more. It's revolting behavior.

> They most certainly are not sitting on all that money, it was used to fund the project.

Then declare bankruptcy and to their best to fulfill the obligations then restructure and continue. Basically he took out a loan he cannot repay, which is unfortunate but not unusual. What is unusual is telling the people you borrowed the money from “I realized I can’t pay you back and still have as much profit as I want, so I’m considering the debt to be absolved.”