This isn't fair because we don't know what is the truth, I know a casino won't risk their reputation for few thousand dollars but from OPs perspective he has all the rights to receive the rewards or exact reasons with convincing proof that he got violated. But the arbitrage betting is kind of complicated too so we can't argue much about it.
For me I see it as fair, I am not saying that the casino is right and OP is wrong or vice versa, I am speaking from a neutral point of view, since the capital was returned, the OP did not lose anything, he just lost his winnings which he thought he deserved (which is the point of contention ).
In some casinos, the player's money is fully reserved and his account is frozen if there is a violation of the terms of use (according to the casino's belief, of course), while here only profits were reserved, so I said it was fair.