I guess this is a major reason that no one has filed a police report yet. The police is likely to question the legality of the exchange itself.

Singapore has one of the least strict financial laws in the world and Bitcoinica has not meet the minimum amount for compulsory licensing of a stored value facility operator (only companies holding over S$20m need license), so holding money is fine. For exchange activities, it depends on whether Bitcoin is considered as a commodity or currency. Both Mt. Gox and Bitcoinica specifically define Bitcoin as a virtual commodity. The commodity market operator in Singapore has a much lower qualifying criteria than other financial products. If it's commodity then it's not a big problem either. For money transfer activities, almost everyone can easily operate a money changer or remittance service provider in Singapore with minimal capital.

Also, Singapore doesn't declare any currency as "illegal". It's legal to use any currency other than Singapore Dollar provided both parties agree to (i.e. you can't refuse accepting Singapore Dollar in Singapore).

I have carefully analyzed Singapore financial laws concerning Bitcoinica's operation, and even though I can't say it's completely legal (because I'm not a lawyer anyway), it shouldn't break the laws seriously.

I'm not sure about Bitcoinica's 2nd stage of operation in New Zealand though. The dispute resolution scheme has been a debate point.