Does passing out pennies actually protect him from legal action? Or is that just an effect of human nature?
Technically it does protect him somewhat. Like any good scammer, he changed the terms of the contracts. You can see the new formula here:
https://bitcointalk.org/index.php?topic=418183.msg9743464#msg9743464A - B = C
Payouts "C" are now whatever PBMining wants them to be. Anyone who bought contracts after that change are screwed.
What about people who purchased contracts before that? When they purchased the contract, there was the following term involved:
Hash power efficiency will never change from what it is now, even if we have technical issues. Our insurance covers you so that you will always receive the proper payments.
So technically, it looks like he broke his own contract with early purchasers.