Relaunch asap, with fee, and try to get some investors to survive the dip. Reputation will be down, but after a while it will bounce back up, investors will know this, and will take the opportunity to get a piece of the pie. It's a risk inverment, but I'm sure there are ways to ensure their stake in this. Hope you can work things out.
He mis-appropriated user funds. The usual barracudas will be circling, but they know damned will that reputation isn't going to be rebuilt with the person who misappropriated user funds at the helm. They'll want the whole pie, not a part of it.
And the "hedging" explanation makes no sense at all. His role was to keep user funds safe. Any risk of users suffering losses due to price movements was
not his risk to manage. He was putting user funds at risk by using them to trade and especially by using them for shorting. He was not hedging anyone's risk except perhaps his own and nor was it his role to do so. He was straight out gambling with other people's funds and would likely have lost them regardless of what happened with Bitcoinica. I'm surprised he didn't "invest" user funds with pirate to offset the Bitcoinica losses given howwell thought out his "hedging" plan was.