When someone deposits at a bank, they don't accept to take any risk as to if the bank will or will not make good investments. If the bank cannot pay depositors, it has to default.
That's correct. But that's because a case where the losses are equally the fault of the bank and those who loaned the bank money are rare. However, if you imagine such a case, it should seem clear they should split the losses.
As a silly example, suppose I tell you that I feel really lucky on the slots today and that if you give me $50, I believe I'll win $100 and split the profits with you. Say you also believe that this is the case and therefore loan me the money, fully believing that I will win $100 and split the profits with you. In this case, if I lose the $50, it's not fair for me to be responsible to you for the entire $50, lost profits, and so on. When you have a common mistake, made equally by both parties, with no significantly greater fault falling on either party, it is inequitable to try to enforce the contract as agreed. In our gambling case, our contract never addresses the case where I lose money because neither of us considered it possible -- it can't say what should happen in that case because neither of us ever tried to make it do so.
However, in this case, the issue is not the default or partial payment. It's that Patrick Harnett chose to operate as himself, and he took deposits in his name and should not default on deposits if he does not default himself as an individual and keeping his personal wealth. The risks of operating under your own name instead of managing a legally separate entity.
The issue in this case is that both Patrick and those who loaned him money made precisely the same mistake, and neither party would have entered into the agreement but for that mistake.
In your example, indeed it's an investment contract with no clause in the case money is lost. It could be seen as a joint venture and the share of the loss could be expected. It was never agreed it was loan, but that he'd use the money for gambling and share the profits.
But in this situation, I disagree that it could be regarded as such. He took deposits, acted as a bank taking deposits and extending loan, stating repeatedly that his business was sound, diversified, and that he could bear defaults. The mere fact people asked about how he operated does not suddenly make it a joint venture or imply that risk will be shared. Otherwise, applying this logic, if I asked a bank about their business practices before depositing into an interest bearing account, the bank could make a bad investment and then default on my deposit without default as a whole because my particular funds went on a bad investment and risk is somehow shared.
By depositing with Patrick Harnett, just like at a bank, you do not assume taking risk in any particular venue or to sharing risk with the various investments & loans the bank will make. They simply entrust their money to a financial service provider who will then make decisions for them. They are not making any specific investment or assuming the risks. One key characteristics is that capital is pooled from all the depositors' funds to be then redistributed to business ventures. The depositors do not take any risk other than the bank defaulting as a whole and Patrick Harnett operated under himself, not a separate entity, but did not default himself.
He acted as if it was a joint investment venture and defaulted only on the capital of depositors, not personally, despite operating as a bank under his own name for his own personal profit, acting as a financial service provider and not directly disclosing how he invested the capital.
If he operated under an independent entity (which earn it's own profit, pays its own taxes, etc.), then defaulting purely as a bank on the deposited capital would have been acceptable, however he was acting as the bank and he was directly and personally receiving any profit yet didn't claim personal bankruptcy.
The wording and claims Patrick Harnett made (at least for the Starfish lending/deposits business) were very misleading as to the nature and how he would manage scenarios regarding his offer.
If you don't agree with the above, well let's agree to disagree on whether to classify Patrick Harnett's business as a joint venture such as your example or as a bank (financial service provider) such as in my example. Because it does not seem we disagree on how to handle the case in either scenario, but on what kind of scenario we are actually dealing with. (Note that I did not deposit anything with Starfish. But I did have a deposit in his other operation (fund), but the mere fact it was a fund would place me under your joint venture example where risk is shared. However he added the claim that "Contributed capital is backed by my personal funds." and defaulted on it without personally going bankrupt. One could have assumed he was borrowing investment capital by backing it with his personal assets, which turns it into a loan more than an actual fund/investment vehicle, but he did not back it as promised when the situation required so. Which you seem to have agreed to already.)