general terms the idea he spent the money is plausible but the low level specifics don't work. He would have had to credit them with phoney fiat, not BTC. Without some other fraud, this would not affect the balance of BTC on the exchange.
Why couldn't he just have created fake BTC sell orders and let 'em get filled, thereby effectively crediting traders with positive BTC balances (comprised of bitcoin that never existed)? ....all the while spending the fiat out of the personal/corporate bank account?
Sure he could have created fake BTC, but that would be another part of the "low level specifics" that would have to be added tp the story. Just spending the fiat on lots of overpriced coffee drinks wouldn't be enough to make the theory work.
In theory if this is the case you would be able to see fake BTC being created somewhere, not just fiat being spent out of his personal bank account, but of course we know that the records and systems being used there were a mess, so easier said than done (maybe not even possible).